Russia’s invasion of Ukraine raises questions about energy policy

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Russia produces about 10 million barrels of oil per day. In recent years, it delivered to Europe with nearly 40% of its natural gas imports and more than a quarter of the oil it buys from abroad. The country’s reliance on energy supplies, and concerns about export disruptions that could drive up prices, have made it difficult for other governments to impose sanctions on one of the country’s most vulnerable countries. their biggest industry.

Like Russia’s attack on Ukraine, at the behest of President Vladimir V. Putin, the highlights loopholes in the West’s energy securitysome have questioned the push by governments and investors in recent years to shift money away from fossil fuels and into renewable energy sources.

Daniel Yergin has written several books on the connection between geopolitics and oil. His first work, “The Prize: The Epic Quest for Oil, Money, and Power,” won the Pulitzer Prize. His most recent, “The New Map: Energy, Climate, and the Clash of Nations,” documents the complex interrelationships between climate policy, national security, and energy.

Yergin, who is also vice president of financial data firm IHS Markit, spoke to DealBook this week. The interview has been condensed and edited for clarity.

How do you connect Putin’s decision to invade Ukraine with what’s happening in the energy market?

This is a favorable time for Putin to move. The oil market goes through cycles, but it just went through the most violent one I’ve ever studied – from a negative price less than two years ago to an extremely overcrowded market. Whether Putin calculates it or not, he has picked a time when the oil market is really tight, the gas market is really tight, the coal market is really tight and he’s a big exporter. of all three. So he is the beneficiary of it. That gives him leverage. So no matter what this terrible invasion costs Russia, he still makes a lot of money from higher oil prices.

Notably, oil and gas are not directly sanctioned [by European countries]. And that’s because, you know, if they do that, you’re really going to beat Europe. I mean, it will fix part of Europe. That is why this is such a difficult situation.

How do we get here?

I think people have forgotten about energy security. When the United States went from importing 60% of our oil to being an exporter, we didn’t think about it then. What we’ve had lately are somewhat myopic policies on investment. And the term I’m using is “no pre-investment” in developing new resources. Oil demand is still growing and is likely to rise at least for the rest of this decade and perhaps early next.

How much of it is a function of the move towards greener energy?

Yes a piece of paper written by an economist, Jean Pisani-Ferry, from a macroeconomics point of view, says that if you try and move too fast, it’s going to be pretty disruptive. And he wrote that in August, and it sounds like an interesting article. And then this one Energy crisis in Europe start first Putin broke into gas deliveries last October.

Just last month, Germany shut down its last two nuclear power plants. And that means importing more gas.

Do you think this is a policy issue, or are investors taking the lead in moving away from more oil supplies?

It’s a combination of policies, but certainly also the power of investors in the market. First of all, the returns for several years are pretty low. We’ve had two oil price declines since 2014.

What about the role of government? Both the Federal Reserve and the SEC are pushing companies to disclose more about their carbon footprint.

We’ll see what comes from the SEC and the Fed turning financial regulators into environmental regulators as well. I think investing in oil will be more difficult. I have heard some oil and gas company leaders say, “Maybe we should go private. We cannot be a public company and still do business in this area.” I don’t think any of them are doing that, but they are feeling those pressures. So it’s a mix of investors and government.

What can the US do to reduce the West’s dependence on Russian oil?

The US has made it clear that it will look to Saudi Arabia to increase production. Currently in the world there is not much spare capacity to produce more oil. Saudi Arabia and the United Arab Emirates make up the majority of them. There is no doubt that there will now be some rather tense diplomacy between Washington and Saudi Arabia.

So what are your expectations for prices over the next six months?

The first big study I did when we started a company was called “The Future of Oil: The Danger of Prophecy.” Having said that, I think we’re in a tight market for a while. The prices are already high anyway, and now they will be higher because of the disruption. The question is whether those higher prices discourage consumption.

Things that can change: First, a US-Iran Agreement, will bring more than a million barrels of oil to market. Second, US production this year will likely increase by about a million bpd. Those are the two big things on the supply side. On the demand side, a high-priced cure is a high-priced cure. What will it do to claim? This is another step of inflation as these costs pass into the hands of consumers and companies.

What can be learned about energy policy approaches and investments in renewables from this?

Wind and sun don’t directly replace oil, unless you have a lot of electric cars. It is advisable to try to accelerate the energy transition, although you may not have a lot of money to do so. On the other hand, I think that also means that you have to think about your near- and medium-term energy security, as well as your climate goals. And if you don’t pay attention to energy security, you will experience more disruption and chaos, which will make it harder for you to meet your climate goals.

What do you think? How will Russia’s invasion of Ukraine affect energy policy? Let us know: dealbook@nytimes.com.

https://www.nytimes.com/2022/02/26/business/dealbook/russia-ukraine-energy-policy-yergin.html Russia’s invasion of Ukraine raises questions about energy policy

Fry Electronics Team

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