Presented by Monocle Solutions

The Great Geopolitical Battle for Energy

 ·14 May 2024

Heatwaves across Asia, fatal floods in China, Kenya, and Brazil, and, over the last year, the highest global average temperature on record – the call to combat climate change by reducing carbon emissions to net zero by 2050 has never been louder.

And yet, there is also a growing chorus of voices arguing that such a target is not only financially impractical but potentially politically impossible to achieve.

At the core of this tension lies the issue of energy supply. For over a century, energy has shaped our collective human trajectory, existing as it does at the intersection of science, economics, and geopolitics. And now, perhaps more than ever before, it is the clash of nations in the global battle for energy that is going to determine our future.

Unpacking these important issues in a recent episode of the Monocle Banking Podcast, Michael Avery hosted Pulitzer Prize-winning author Daniel Yergin for a robust discussion about the complexities underlying the global metanarratives of climate change and energy transition.

Dubbed “the one man whose opinion matters more than any other on global energy markets,” by Time magazine, Yergin has devoted three seminal books to the topic, the first of which won the Pulitzer Prize for General Non-Fiction in 1992.

Reflecting on his long career in energy research, Yergin commented, “It has been decades of trying to understand energy markets, the energy industry, and what I’ve always found just so compelling is that if you do energy, you’re talking about everything from technology to geopolitics.

It’s a particular way of looking at the world, and I think a very crucial and important way of looking, especially at this juncture.”

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Avery noted that in 2000, hydrocarbon fuel sources provided 87% of the world’s energy. In 2022, this had only been reduced to 82%. This not only raises critical questions about the feasibility of reaching net zero by 2050, but also of the nature of the global energy transition that is meant to move the world closer to this target.

The problem, as Avery described it, is that “even as we talk about this transition, even as we talk about net zero, and as renewables have undergone tremendous growth, it really has been offset by increased demand for energy.”

Yergin similarly highlighted that while there has been a small reduction in the overall use of hydrocarbon fuels on a relative basis over the past twenty years, on a nominal basis, the world is using more of these fuel sources than ever before.

This will likely continue to be the case, especially in developing nations that must achieve energy security to support economic growth.

“I think we actually need to revise our thinking about energy transition. There’s been a tendency to think it’s linear,” commented Yergin, “In fact, it’s going to be a multidimensional energy transition.

It’s going to unfold at different times in different priorities, at different rates, with different technologies, in different regions.”

This is a reality that does not appear to be fully appreciated on the world stage, however. Yergin described a meeting he recently chaired with a group of African energy ministers, during which one of the ministers from Senegal detailed the difficulties her country faced in securing financing to build a natural gas pipeline.

She explained that the development of the pipeline would eliminate the need for local women to spend hours gathering wood to burn and prevent deaths from the indoor air pollution associated with fires.

European banks have refused to grant Senegal financing for the pipeline, however, arguing that funding any project connected to hydrocarbon energy sources goes against their policies.

“But not having the finance is like taking the ladder away for development,” Yergin recounted the Senegalese minister saying, “What do they expect us to do? Jump or fly?”.

For Yergin, this example perfectly captured the difference in priorities that currently pervades the world.

And then there is the outsized influence of China in this multidimensional energy transition.

China has become the dominant producer of renewable technologies such as solar panels and electric vehicles, an achievement that has relied on it securing a supply of critical minerals, such as lithium and copper, from African nations.

In this respect, Yergin states that China has clearly outpaced Western nations, which have only recently woken up to the fact that the energy transition is going to be metals intensive.

This has ignited a move among Western governments to diversify supply chains away from China, but doing so will be challenging given the long-term, capital-intensive nature of mining.

“It sounds to me like the US has ceded a lot of ground to China already in establishing itself as a leader in the new green minerals value chain that will drive this push towards net zero,” commented Avery, “And I think you have to see this in a larger geopolitical context, because this is where the energy transition collides with great power competition.”

The Monocle Banking Podcast series has struck a chord with listeners in South Africa, bringing complex of-the-moment issues in finance, banking, and geopolitics to the fore with an array of expert guests in conversation with the always deeply informed Michael Avery.

This podcast series is sponsored by Monocle Solutions, an international management consultancy whose president, David Buckham, has written extensively on many of the topics under discussion in his books The End of Money (2021), Unequal (2022), and Why Banks Fail (2023).

In his forthcoming book, authored with Robyn Wilkinson, Buckham will tackle the enormous problem of colliding metanarratives currently shaping our increasingly multipolar world, of which climate change stands dominant.

“Given the increasingly alarming effects of climate change as it bears down on us, it surely makes no sense to continue relentlessly down the path of ignoring blatant economic truths in favour of playing along with grand global metanarratives,” Buckham stated in a recently published article on the issue of energy efficiency.

Follow the link to listen and subscribe to the Monocle Banking Podcast:

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