The Geopolitics of Energy ~ by Dave Wilkin and Tim Lutton

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A mini-series on the future of energy
By Dave Wilkin, P. Eng., M.Eng. and Tim Lutton, BSc., MBA

Our previous articles showed carbon energy’s dominance both today and in the foreseeable future, highlighting those geographic regions most energy-rich or energy-insecure, and exploring the dynamics of growth. Let’s now delve into how geopolitics shapes the future of energy.

Energy superpower Russia holds 30 per cent of gas and 10 per cent of global oil reserves. President Putin wields this power effectively, with Europe being his primary target. He also meddles extensively in the Middle East (notably Iran and Syria) and lately oil-rich Venezuela and the disputed Arctic regions. President Putin is a master at it, looking for opportunities, and working against any constraints that put Russian energy at risk (30 per cent of the Russian economy depends on it).

Despite decades of green policy efforts, high energy costs and high carbon-taxes, 81 per cent of Europe’s energy demand remains carbon-based. Excluding imports, just two years of oil and six years of gas reserves remain, and declining North-Sea oil and gas represents 80 per cent of their reserves. Europe being dependent on Russian and Middle-East energy supply is bad enough, but it will worsen as competition from Asian energy demand grows, and if Middle Eastern reserves decline sooner than many think. Given these dependencies, it’s no wonder the EU opposes US-Iranian sanctions and recently approved the controversial Russian Nord Stream-2 gas pipeline. Energy insecurity fears from past Russian gas embargoes, Middle East unrest and OPEC price-fixing drives Europe’s aggressive green-energy policies, including their pursuit of ‘net-zero carbon emissions by 2050.

Asia’s energy security of supply situation is almost as severe as Europe’s. With over 90 per cent of their energy still carbon-based, and continuing rapid economic and population growth, Asia has less than four years of oil reserves, excluding imports. No wonder new US-Iran sanctions rattle China and others in the region. It also explains much of China’s multi-trillion dollar ‘One Belt, One Road initiative’ which pushes major energy infrastructure and development deep into the Middle East, Eastern Europe and beyond, with many Asian nations following close behind. China’s Arctic ‘Polar Silk Road’ ambitions seeks to access the estimated 13 per cent of the world’s remaining oil and 30 per cent undiscovered gas. China also seeks to dominate renewable green-energy sectors, leveraging its manufacturing advantages, state-subsidies and, most concerning, rare-earth materials domination (owning 85 per cent of global production), critical in all things electrical. Asia’s 80-plus years of coal reserves provides a low-cost energy backbone, and they lead in global coal consumption. But there’s a cost: air pollution tops China’s environmental issues, killing an estimated one million people yearly. There is no surprise relatively clean natural gas consumption soared 18 per cent in 2018. China is delighted to see western nations pursuing the elimination of carbon energy. Ultimately, they view energy and climate change through a self-interest lens, seeing both risk and opportunity/advantage.

The US is in the middle of a shale and tight oil boom, recently becoming the world’s largest energy exporter and accounting for 98 per cent of global oil production growth last year. The US views energy as a strategic lever in their economic supremacy battle with China. However, their oil boom will likely be over within a decade, then the US will face declining domestic reserves. Canada possesses most of the remaining global oil reserves outside of unstable/undemocratic countries. No wonder the proposed Keystone-XL pipeline was approved by the Trump administration, and why it’s in America’s interests that new Canadian pipelines never reach tide-waters. The US is going to soon need our oil, and less competition for it is better for them. With only 13 years of North American natural gas reserves remaining, growing demand and excessive losses from shale-oil gas release/flaring, reserves could fall into decline sooner, particularly if US government energy policy shifts, scaling back new gas exploration.

Finally, geopolitics played heavily in the 2015 Paris Climate Agreement. Fast-growing developing countries got emission reduction passes, ensuring continuing rapid economic growth. Carbon energy giants OPEC and Russia also got passes, allowing unfettered emissions plus intensive carbon energy production and export. Europe celebrated as other developed nations such as the US, Canada and Australia set totally unrealistic targets, seemingly leveling the economic playing field. Economic lagging countries got empty promises from rich countries to help fund expensive fledgling green energy projects. The leaders declared success to cheering media, but with very little changes. It appears political theatre and national self-interest overrides any serious climate stewardship concerns. This pattern remains intact.

The Bottom-line: Geopolitics shapes the global energy future, but not in particularly good ways.

Our next article will explore key technologies vying to lower energy Carbon Intensity. Watch for it!

Dave Wilkin is a Professional Engineer who lives in Huntsville. He is an electrical engineer with a career spanning 35 years in IT, banking and consulting.
Tim Lutton worked in the natural gas and LNG industry for 32 years; with Imperial Oil in Canada, and ExxonMobil in the USA, Australia and Qatar and now lives in Huntsville.

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16 Comments

  1. A very interesting article and explains why a carbon tax is just another money grab from our Govt and will do nothing to fight pollution except make some people think they are doing something. A lot of people seem to think electric cars are the way to go but from what I hear the mining of lithium is making a bigger impact than the oil sands are not to mention the power we will need to keep all the electric cars charged. I just can’t imagine the power it will take if every car in all the cities come home at 6 P.M and plug there car in.

    • Ray, the world will need our oil sands for another 50 years, but what do you propose your grandchildren should do when the world runs out of oil in about 50 years?

      • I know where you are coming from with that and I’m not any more able to answer that than anyone else is. One thing I know is the powers that be have been talking gloom and doom about oil running out for the last fifty years and we still have quite a bit.I do agree that we need some alternative but I’m not smart enough to come up with one I really don’t think solar or wind will be the answer someone is going to have to find some other kind of energy that is none polluting.

    • You make some good points, Ray. Rare earth minerals are vital and strategic for the U.S. and the Western nations. That’s why President Trump wants Greenland–one of the few places (so far) beside China which has them in amounts large enough to avoid being held hostage to China’s supply. The Chinese are already investing in Greenland.

      China has been busy waging economic war against the West (but particularly the U.S. and Britain) for decades now. There’s a bit of history that we need to understand in order to gauge some of China’s motivation in geopolitics.

      China today practices a form of primitive capitalism called “mercantilism”. The Western nations officially veered away from mercantilism some time ago. But, many of the business practices of mercantilism remained in far away places like Asia–away from the prying eyes of moral reformers at home. A prime pillar of mercantilism is the pursuit of monopolies for the obvious purpose of increasing profit at the expense of consumers. Competition is vital to making modern capitalism fair for all “stakeholders”. But even darker practices than the pursuit of monopolies are part of mercantilism as well.

      The 18th century economist and devout Christian moral philosopher, Adam Smith believed that mercantilism was immoral because of its predatory nature abroad as well as its severe exploitation of workers at home. The European nations previous obsessive desire for colonies to conquer, as well as the economic enslavement (and, sometimes real enslavement) of the people of those colonies, was one of the darker chapters in economic history. That, along with the severe deprivation of domestic workers, caused Smith no end of moral outrage, leading him to write a seminal work called, “The Wealth of Nations”. The conscience of many reformers was aroused and Important changes took hold domestically.

      But, those who desired to enrich themselves through the severe exploitation of workers and natural resources, just went abroad–not in military conquest as much as economic conquest (although they weren’t averse to forming their own little mercenary armies, if an occasion warranted it). A glaring example of this kind of extremely greedy capitalism and one which formed a template for these predatory mercantilists was the The British East India Company. It had been formed in the 1600s, in order to exploit the riches of India and Asia, along with virtually enslaving their people (racism played a huge part in the scheme, naturally).

      To make a long story short, The British East India company had made life extremely miserable for Indians for several hundred years. In 1770, millions were deliberately starved in Bengal province, through the commandeering and exportation of the Bengali’s stored grain, by The British East India Company. But, British colonial rule was little better during the period known as the British “Raj”. Until Indian independence in 1947, British colonial rule kept the Indian per capita GDP at bare subsistence levels, through systematic looting.

      This brings us to China and some possible motives for the way China is behaving in geopolitics today. In the early 18th century, The British East India Company discovered that there was a ready market for India’s opium in China. The smuggling of opium into China turned out to be the most lucrative enterprise of all. As a result, many millions of Chinese died through opium addiction. The Chinese have a VERY long national memory–they detest the Japanese, to this day, for several Japanese atrocities during WWII. One wonders if the Chinese dominance of the smuggling of illegal drugs into the U.S. from Mexico–especially opioids, is more than just simple greed although that is undoubtedly a strong part of their motivation. But it is also likely payback as well. We live in “perilous times”.

  2. Have you gentlemen read the book ” The Seven Sisters” a factual history of the “oil” industry Showing the lineage of power from the Standard Oil anti trust suit of a hundred years ago (which became the Seven Sisters when Standard was broken up).

    I mention this because if you had read it, you would see that the “nation state” is absolutely irrelevant….yes even Lukkoil and Gazprom have direct and current ties to the Rockfeller lineage. This is no deep state conspiracy theory, you can actually see the ties on the Board of Directors.

    I suspect that you don’t read comments….but this whole series has needed more research than you can find on quick Google searches

    • Paul have you read the recent book “Dark Money”? It continues the theme you mention and explains how the Koch brothers (modern oil barons) and a few other billionaires with old family money created the radical right in America to preserve and grow their wealth. They gradually chipped away at the US tax system and election campaign contribution laws over 50 years, so they now have total control. They created the situation in which American companies outsourced millions of jobs to low-wage countries to pay bigger dividends to hedge funds and big investors at much lower than regular tax rates, and by doing so virtually eliminated the so-called “American Dream” that is really everyone’s dream. They hood-winked the voters and created the situation in which the 1/2 of one percent now owns more than 50% of Americans. The ratio of the top 10% to the bottom 10% in America is now substantially bigger than in Russia. Very sad to see what has happened to a great country. And the Trump tax cuts continue to favour the rich, add to the equality gap and add substantially to the US national debt. Populism is supposed to benefit the ordinary people, but so far it has not. There are lessons in that for Canada.

    • I do read comments Paul. If you have more comments or relevant material, please post it. Even better idea, seeing you seem to have such strong opinions and criticisms on this important topic, why don’t you write a piece yourself?

  3. A good analysis of how geopolitics is driving policies on energy and climate change in many countries. However, I would add that the global goals expressed by the UN are what should be guiding us all.
    1. Do our best to mitigate climate change so the world stays livable as long as possible
    2. Shift towards a global energy supply that is sustainable in both quality and quantity
    3. Mitigate the economic disparity between nations that is the source of conflict and mass migration. No country has a ”manifest destiny” to always make more money and more waste than others.
    US Canada EU China
    GDP per capita at PPP $59,495 $48,141 $33,720 $16,624
    % of global emissions 18% 2% 12% 25%
    Emissions per capita (tonnes / yr) 16.5 15.2 8.8 7.5

    Arguing for the best deck chair on the Titanic is a totally futile exercise. Ironically, the UN Intergovernmental Panel on Climate Change was proposed by the US in 1989. The Paris Climate Agreement is not perfect, but after 27 years of hard work, it was the best compromise to date. It is something to improve and build on; not something to quibble about and withdraw from. Every country has unique reasons for the amount and type of energy they currently consume, but to ensure a livable future for themselvs, all countries must do the best they can do towards the UN goals.

    • These are just more pie-in the sky goals from the UN; akin to their plans for world water supplies. Most countries come on board, and then sit idly by as the international principles are ignored. Capitalism will always ensure that the profit motive, rather than any humane goals, is the ultimate driver. BTW, I haven’t checked lately, but how much is the US in arrears with respect to their UN dues? I thought that they might have been “guilted” into paying their fair share when Ted Turner donated $2B several years ago; but why pay when you have most of the sheep in tow anyway?

  4. Well written. I think Andrew Scheer’s Enviromental approach is more in line with the global big picture that you have presented.

    • Robert Attfield on

      Like it or not, it seems that despite the enormous costs involved and the danger of disasters, we will have to move incrementally toward more nuclear power to bridge the gap between declining fossil fuel reserves and the limitations of green energy.

  5. Thanks Hugh. For 80% of the worlds population, improved standards of living, which means more (carbon) energy, is a higher priority than climate-change future risk. Until that changes, it matters little how much Canada, Europe etc. reduces carbon-energy consumption.. that’s the simple reality of our shared world.

    • Good point Dave. But how can we expect developing countries to get their priorities straight when the biggest rich country in the world is officially going 180 degrees in the wrong direction? Someone has to turn the tide by setting a positive example, or we are doomed. Thankfully there are many smaller populations including Canada, Sweden, Denmark, Finland, and even many US states that are trying to do the right things.

  6. Geopolitics…. Hmmm!
    Six little drones at dawn into a refinery in Saudi Arabia and “poof” goes 5% of the world’s oil supply in a matter of hours.

    Odds are that they will never catch the perpetrators despite Trumps tweets.

    Makes one wonder……

    • Yes Brian, it does make one wonder. Saudi Arabia has 25% of the global 2P oil reserves, and supplies about 15% of today’s global demand, so its a big deal.

      Why on earth do so many political parties in Canada think its a good idea to shut down our oil sector? It would put us in the same precarious situation as Europe, or China … and accomplish absolutely nothing for the climate. Pure ignorance…

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