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World’s Largest Economies Lag Behind in Delivering Secure, Affordable, Sustainable Energy

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] W [/yt_dropcap]hen it comes to achieving affordable, environmentally sustainable and secure energy systems, a group of small economies is quickly accelerating away from the rest of the world. The top 20 performers in the fifth annual Global Energy Architecture Performance Index Report 2017 have achieved twice the average increase in their score compared to that of all other countries.

The report, developed in collaboration with Accenture Strategy and launched today at the European Commission, ranks 127 countries based on their ability to provide energy across three dimensions of the “energy triangle”. It finds that the highest performers, which are primarily smaller countries and advanced economies, can overcome constraints if supporting policies are in place.

EAPItop20According to the findings, the world’s biggest energy consumers struggle to take leading positions on the index as they grapple with inherent challenges of their large, complex energy systems and are outperformed by more nimble economies. Overall, some of the largest consumers of energy such as China (95th), India (87th), Japan (45th), the Russian Federation (48th) and the United States (52nd) have either slipped in the rankings or experienced only marginal gains.

“We’ve seen some significant shifts in the way energy is sourced, delivered and consumed over the past five years,” explained Roberto Bocca, Head of Energy and Basic Industries and Member of the Executive Committee at the World Economic Forum. “Future energy demand and unprecedented technological developments will continue to present new challenges and opportunities for countries. Now more than ever, countries must understand the performance and trajectory of their energy sectors and have a resilient approach in place to drive progress.”

The top 20 performers on the 2017 index represent a diverse mix. European countries lead the index, with Switzerland (1st) and Norway (2nd) taking the top spots. But other regions also hold high-ranking positions: Colombia (8th), Uruguay (10th) and Costa Rica (14th) are the highest-ranked Latin American nations, while New Zealand places 9th.

While many of the top performers are smaller countries, both by gross domestic product (GDP) and population, some larger countries including France (5th), the United Kingdom (15th) and Germany (19th) have effectively managed complex energy sectors alongside large economies. The presence of European nations among the top-ranking countries reflects advantages gained through a long history of coordination within the region.

“I welcome very much the World Economic Forum’s initiative of the Global Energy Architecture Performance Index (EAPI). Its objective to examine the progress of the global energy transition towards more sustainable, competitive, secure and affordable energy systems matches very well with the objectives of the Energy Union strategy. The fifth edition demonstrates well the unprecedented structural changes in the global energy system. Europe, with its clean energy transition, has embarked on an ambitious path to lead this goal” said Maroš Šefčovič, Vice-President of the European Commission in charge of the Energy Union and launch partner of the report.

When comparing this year’s average Global Energy Architecture Performance Index to that of 2009, only a modest improvement has been made. However, a number of stand-out performers have climbed the ranks in this time frame by making significant improvements to their energy systems. These include Jamaica (116th to 92nd), Nicaragua (95th to 72nd), Tajikistan (66th to 46th), Mexico (59th to 44th), Luxembourg (37th to 23rd) and Uruguay (25th to 10th).

“Transitioning their energy system to a future state that is more affordable, environmentally sustainable and secure should be an ongoing endeavour for every country, said Muqsit Ashraf, Managing Director, Accenture Strategy – Energy. “As this landscape continues to shift, energy companies need to contribute to the change and adapt to the evolving global energy system. That means rethinking how and where they invest, and the role they play in working with governments and policy-setters.”

The report studies a selection of the top performers, as well as the biggest upward movers, and reveals three principles for generating improvements in energy sectors.

Frame the long-term direction for the energy sector, and commit to it: Governments with long-term visions provide important continuity across these extended time frames. A clear frame and long-term direction are seen to form the basis of policy goals and provide a sense of stability required to encourage investment.

Enable the energy transition with adaptable, co-designed policies: The policies most effective at advancing a country’s energy transition are those which enable solutions that best suit a country’s context. This means creating the necessary opportunities for innovation to flourish and providing flexibility for the most appropriate technologies to emerge organically.

Steward investment towards the areas with most impact: Significant investment is required to make progress on the energy transition and to meet growing demand for energy. The stability of committing to a long-term vision is a must for establishing investor confidence. Stewardship of investment then directs the capital required to support the energy transition to the right projects that will drive progress.

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Energy

MBS Outmaneuvers Russia’s Oil Politicking

Saad Khoury

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In the wake of the coronavirus outbreak, one of the major economic consequences has been the substantial hit to the energy industry.

Ever since the virus began to spread in January, global markets have been tumbling. This set the price of oil in a downward spiral, reversing many gains  that had accumulated over the last several months. Demand for oil dropped for the first time in over a decade and forecasters at the International Energy Agency assess the decline will continue. While natural gas and coal markets have also been hit, oil demand has dropped more pronouncedly given it supports the freight and logistics sectors that have ground to a halt in recent weeks. The lack of demand for oil in China alone has had a devastating impact – Beijing’s newfound hunger for the commodity was responsible for most of the price increases recently.

However, these unique phenomena have had effects far beyond the purely economic. Politically speaking, the oil market crisis has pitted two global energy giants against each other, producing very intriguing results.

In early March, a meeting took place between the Organization of the Petroleum Exporting Countries (OPEC) and ten other oil-producing countries, known as “OPEC+”. During the conference ending on March 6, Saudi Arabia’s leader, Prince Mohammad Bin Salman Al Saud (MBS) reportedly pushed the idea of coordinating a reduction of output between Saudi Arabia and Russia. MBS planned to reduce output by over 1 million barrels per day, offsetting the major decrease in demand that had been triggered by the corona crisis to stabilize the market. The plan seemed like it was ready to go through until Moscow announced at the last minute that it would refuse. The Kremlin’s about-face came as a shock to OPEC and the international community who saw the move as an attempt to torpedo and politicize the oil sector.

Indeed, oil prices plunged by nearly 10% following the surprise move. It had been widely expected that the Russians would go along with the plan, simply because the alternative, i.e. leaving oil markets in a high-supply-low-demand frenzy, seemed much worse.

So what was at the heart of Russia’s bizarre decision? Revenge.

Washington imposed sanctions on Russia’s oil giant, Rosneft, a month ago over the company’s continued support in selling Venezuela’s oil. In an effort to retaliate, and perhaps prevent future American sanctions, Moscow was hoping to get Riyadh on its side in a plan to inflict economic pain on US shale producers. Moscow has for long felt American shale has been getting a free ride on the back of OPEC+ production cuts. For Moscow’s plan to work, it would still need the support of OPEC+ to ensure that price drops remained temporary and sustainable, since Russia’s oil economy cannot support its country playing oil politics for too long or for too much.

MSB on his part refused to take Russia’s actions lying down.

Almost immediately after Russia’s decision, Riyadh cut its official selling price for April down to $8, from a previous $14, in an effort to pressure Russia back into a deal. Days later, the Saudi government said it would begin increasing oil output to reach a record 13 million barrels per day. The decision came after authorities had already announced they were planning to increase output to 12.3 million. In a statement, Saudi Aramco, the largest energy producer in the world, stated, “it received a directive from the Ministry of Energy to increase its maximum sustainable capacity from 12 million barrels per day to 13 million.”

In essence, MBS has outmaneuvered the Russians in their attempt to hurt the global market and circumvent the effects of sanctions. In other words, MBS called Russia’s bluff by lowering prices even further so that the Kremlin could not dictate terms to OPEC. An impressive example of standing up to Russian manipulation, something that Western powers have been struggling to do for years. 

Russia on its part has been reeling from the effects of the Prince’s decision. 

On March 10, Russian Energy Minister Alexander Novak sought to project confidence, but acknowledged there was a decrease in prices and an increase in volatility. Novak also seemed to have admitted that his government made a mistake and had sought to reach out to the Saudis to “scheduled further meetings to estimate the situation.”

It is important to highlight that Russia was very likely thrown off balance by the Saudi reaction here. Moscow is not used to having its highhanded moves being responded to in kind, and almost certainly did not expect MBS to respond the way he did.  

While the future of this fallout is still unknown, one thing is certain: MBS has demonstrated his country will not be another pushover to Russian aggression.  

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Saudis’ price war or a Russian plot against U.S. shale?

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Since early Monday, the announcement of a “price war” between Saudi Arabia and Russia, two biggest OPEC+ allies, hit the headlines of almost all of the world’s news agencies and outlets and released a wave of panic across the markets all around the world.

Following the two sides’ bitter break up on Friday, oil markets started the week with a free fall; prices plunged nearly 30 percent on Monday to record the sharpest one-day fall in the past 29 years when the first Persian Gulf War was started in 1991.

Brent crude futures fell to nearly $30 on early Monday, the prices, however, bounced back later that day as the impacts of the event faded.

Energy experts and analysts are suggesting two completely different scenarios to explain the series of events that led to the Friday decision.

In one scenario, the one that is broadcasted globally, Saudi Arabia which wanted higher prices or at least wanted to maintain the current price levels asked for more cuts but Russia was OK with the current prices and even was ready for lower ranges so they didn’t agree and the OPEC+ deal ended.

The second scenario, which is more intriguing and more controversial, says that there is no “price war” between Saudi Arabia and Russia, and what we are witnessing is, in fact, Russia declaring war against the U.S.’s “global energy dominance”!

To learn more about the issue, the Tehran Times conducted an interview with Mahmoud Khaqani, an international energy expert. What follows is a summary of the expert’s views on the matter.

Saudis and Russia

Obviously, these days Saudi Arabia is not experiencing its best days. The Kingdom is under pressure both economically and politically.

According to Khaqani, the plunge in oil prices due to the sharp decline in global demand following the spread of coronavirus and its impact on the global economy and transportation has added significantly to the crown prince’s problems causing the young prince to call for deepening of the current 1.8 million cuts.

When faced with disagreement from its biggest non-OPEC allay Russia, the angry Saudi immediately lashed back by offering huge discounts for their oil prices and announcing that they would boost their production to more than 12 million barrels per day (bpd).

Russia, on the other hand, has maintained a calm attitude, saying that its oil industry is resilient enough to keep its market share and withstand even higher price downturns, he said.

Russia and the U.S.

Khaqani believes that the Russians are in fact at war with the U.S. oil industry, and Washington’s use of oil as a strategic asset.

What they call “price war” has already hit the U.S. oil industry hard since Friday and the persistence of the situation could damage the U.S oil industry and dethrone the U.S. from its position as the world’s largest oil producer.

Russia has targeted not only the U.S. oil industry but also the country’s bigger strategic programs for using oil and energy as leverage for applying corrective sanction policies, which Kremlin is already under.

Analysts believe that Russia is trying to thwart the U.S. sanctions that have been intervening with the completion of the country’s Nord Stream 2 pipeline project, which would take natural gas to Europe, making Russia one of the biggest energy players in the world.

The U.S.

In response to the mentioned scenarios, The U.S. Department of Energy (DOE) has said that the U.S. will take all necessary measures to maintain its role as the world’s top energy producer and in fact, the country is not going to step back from its “global energy dominance” strategy.

Khaqani believes that the U.S. is seeking to take Saudi Arabia’s role in the oil market becoming the new swing producer capable of regulating production levels to control oil prices.

“These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world. The United States, as the world’s largest producer of oil and gas, can and will withstand this volatility,” the DOE said in a statement.

Final thoughts

Whatever the real reason for the rift between Saudi and Russia is, its impacts on the oil market are undeniable.

If the “war” is just between the kingdom and Russia many believe that the impacts will be short-lived and in the near future, we would witness the markets getting back to a more stable status.

The fact is that now after the break-up Saudi Arabia is going to flood the already oversupplied market with oil and eventually Russia which is not able to increase its production as much as the kingdom will have to step back.

If the second scenario is correct, however, we should expect more complications.

From our partner Tehran Times

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Energy

Oil Wars: Russia and Saudi Arabia in the forefront

Sisir Devkota

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Recent developments in Italy and the stock market have things in common. Both came as an alarming surprise; while Italian authorities took stringent measures to lock down the entire nation due to Covid-19 fears, oil prices plunged remarkably in the past week. Rather shamelessly, Russia and Saudi Arabia are exploiting the international epidemic; in order to eclipse a once in a lifetime opportunity. As Saudi Arabia and Russia fought against each other to increase production, oil prices spiraled down in years. The oil giants are looking to consolidate losses from the past. Primarily, both the nations are looking to keep American oil supply arrested, amidst the pandemic uncertainty. As OPEC nations agreed to limit production in order to maintain oil prices, Russia disagreed, prompting the kingdom to counter a bizarre monopoly. The virus has kindled new age energy wars; at the epicenter, are two nations, displaying dreadful nature of international responsibility.

History is key here. Saudi Arabia is sluggishly recovering from an oil field disaster while Russia is eyeing years of forfeited trade advantage caused by western sanctions. International effort is concentrated towards containing the virus, whereas handful of interest agencies along with both nations are seeking an unlikely triumph. A true windfall has caught Russia by surprise, a rare opportunity that will not slip from Putin’s hand. On the other hand, Saudis, rather egoistically are pursuing their godsend place in the international energy market. The scuff is undoubtedly interesting, however; consequentially, it will also determine fortunes for some and famine for others. OPEC’s decision to lower production in order to maintain current oil price is not a samaritan effort; nevertheless, it would have saved capital over-indulgence that could have instead concealed humanitarian efforts to contain the pandemic. For now, management is key and stock market health can prove to be momentous. A lively market is key to ward off unprecedented economic stress.

Russia and Saudi Arabia’s naivety has led to extreme stock market resistance. The world is watching the fight closely, waiting and hoping for the standoff to deflate. It is not the stalemate that is most worrying; unusual market activity is quietly manufacturing an enormous bubble waiting to crack. Market resistance is tipping at a dangerous degree; world markets are sincerely counting on each other for support. For instance, consider how markets would plunge lower than they otherwise would, as oil prices keep decreasing uncommonly. A sinking ship is resisting, waiting for water levels that can only drown by all rationality. Hence, the analogue.It would have taken Russia and Saudi Arabia a great deal of conscience to withdraw national interests for the sake of global welfare. Just in case the virus does not cease to pare, we are in for a truly global disaster. As more nations will testify infected population, the stock market will increasingly face nervous breakdowns. Then after, it will be impossible to guess directions.

Reduced oil prices will complement some and destroy others; the relationship is so disturbing that daily economics might just have to re-invent itself in the face of unpredictability. Imagine the aviation industry exhausting oil demands, in the face of historic low prices. Russia and Saudi Arabia understand the tradeoffs, yet national interests have blindfolded competing energy giants. In the long run, Russia and Saudi Arabia would have stored enough barrels to dictate oligopoly. Alluringly, the case does not rest there. Both the nations will also be hoping for which now looks like a miraculous recovery from the pandemic; future profits will uncharacteristically depend on a healthy market. The risk has been taken despite of all uncertainties. For a change, both Putin and Bin Salman will also be praying, nevertheless.

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