By Saliem Fakir · 10 Feb 2009
The impact of the power revolution is most felt in the way in which the new steam and electrical technologies transformed human life in general – forever, so to speak. One thing fed another, producing a cacophony of innovation and redefining the very nature of abundance.
What industrialisation and the power revolution have unleashed for the west has become the dream of not only of one power, but many powers who feel they have been excluded from its magic and capacity to bring seemingly endless material rewards. Nothing of this sort happens without consequence. Herein lies the story of the 21st century’s quest for energy and global supremacy. Energy is at the heart of this battle for global economic dominance.
If you study the history of energy transitions from wood, to coal, to oil, gas, to nuclear and now towards clean energy solutions a lot had to do with political, social and technological innovation.
Rarely was it actually an issue of scarcity. Although in some countries scarcity may have played a role. For close to 200 hundred years, we actually lived in periods of energy abundance. The 21st century’s portents are different – we have declining abundance in conventional energy, as well as a decline in abundance of environmental resources.
The two forms of scarcity are working synergistically to produce pressure that will force us in the direction of having to embed ourselves in sustainable energy solutions. Some of us will have to make this transition faster than others.
The world is in the throes of a new energy revolution. But the new will not come summarily without exhausting the old. There will be a two-step transition to a sustainable energy future. The first step will be driven by nationalistic objectives of energy security and on this basis, the second, which will mark the true transition from fossil-based fuels to alternative energy, will be born.
The first is the key to the second and the second cannot happen without the first unless you are Iceland and have vast geothermal and hydro sources of energy. In Iceland’s case, the leap to the second can be immediate.
We are likely to see more intense use of carbon-based fuels in the intermediate period before the true transition to sustainable energy makes its breakthrough. Security over oil supply is at the heart of international geopolitics because most of the competing powers: the US, China, India, and Europe are dependent on oil imports; Russia being somewhat of an exception.
The next 100 years are going to be the most important in human history -- and it won’t be business as usual. Currently, most of the world’s petroleum is used for electricity generation and transportation. Nine-tenths of the world’s transportation system depends on oil. Much of the oil that is needed is nationalised or being nationalised and resides in countries that are antagonistic towards the west. China and India are digging up more coal than ever before.
About 70% of all the key oil reserves in the world are nationalised in one form or another. There is further intensification of state control. Most recently the Brazilian government, under Lula, is also considering setting up a state owned oil company because Petrobas, its current partially state owned energy enterprise, is 60% owned by foreigners.
China and Russia’s strategy involves direct control over key fossil fuel reserves rather than rely on the markets. Everybody is scrambling for the best reserves and anything they can get their hands on.
State-to-state forms of alliances are rapidly replacing the former model of corporate-state alliance with direct state negotiations as the preferred mechanism for deal making.
We were witness to this most recently with the visit of the Venezuelan President Hugo Chavez’s to South Africa where an oil deal was signed between South Africa and Venezuela.
This is a significant political shift in the oil business. It means that diplomacy and state-to-state political relations are going to be key to gaining access to these remaining reserves rather than commercial channels. Hence, the importance of geopolitical relations rather than the markets.
Russia is busy consolidating its gas interests going as far as even North Africa. It recently signed a gas deal in Algeria and is doing similar deals in Nigeria, Libya and elsewhere. Elements of this consolidation strategy are also reflected in the thinking of the Shanghai Cooperation Organization (SCO).
Increasingly, because of the perceived common threat from the US to Central Asia the SCO is slowly being transformed into an “energy club” to bring about a unified energy market for oil and gas in the region.
Russia is bent on cornering Europe so as to use energy security to gain political concessions – for both China and Russia the SCO is an important regional instrument in carving a new political geography in the Caucasia.
The significant accumulation of capital under Sovereign Wealth Funds is really a war chest in this big energy and geo-political game that is beginning to play itself out. Russia has close to $300 billion in reserves, China about close to a trillion dollars and many other emerging economies. Russia is using the windfall in high commodity prices for gas and oil only to expand its grip on more energy sources. So is China.
Since 1993 China has become a net importer of oil and is the third largest consumer of oil after the US and Japan. China’s oil consumption has been growing by 8% a year since 2002. Both the US and China spend billions of dollars on the military to keep energy resources, in particular oil, flowing through safe routes.
It is not only the fact that there is a political resistance that hinders the leap to the second, but also commercial. Oil is a massive industry: the largest in the world. There has been trillions invested in oil infrastructure and a few more trillions need to be invested.
The owners of this infrastructure, the big oil companies, banks, governments and automobile industries want to see returns on their capital investments. They will hang onto the oil economy for as long as they can. Transitions are expensive. They will require new infrastructure and the economics of which don’t favour as yet the existing players in the oil industry.
Energy is core to their international outlook. All countries that have superpower ambitions want to win this game.
The first phase of the transition is occurring the way it is because nobody has a serious game plan in place for a transition to alternatives. Only a few countries will make it to the top spot -- those countries that win the game in the first part of the transition.
These countries will easily make it to the second. No national economic objectives can be met without a serious energy game plan.
The signs are everywhere that we will have to walk a different path and it is precisely this path that should be guiding our thinking, our organization and capacity for innovation. The energy revolution will be both in its politics, the way it is organized and shifts to different types of energy.
These countries are not doing it entirely for reasons of the environment only. Countries are thinking far more about transitions now than they did before. They want to be certain that they are not at the mercy of those powers that have secured abundant energy supplies.
For the first time, we are entering a period where resource scarcity especially of non-renewable sources is posing a real threat to sustaining our way of life and our economies. There may be disputes about peak oil, peak gas, or peak uranium scenarios -- the reality is that within the next 50 years we will be entering a sort of tipping point in resource constraints, given the foreseeable massive growth rates in the economies of emerging economies.
The game before the long-term transition, in what we may classify as the intermediate and medium term period, is one of access and control over the last remaining reserves of non-renewable resources. This is very much the game of the big powers and we will all be caught in the crossfire, so to speak.
Energy is the key to power. Energy is the key to being a dominant player. How energy security plays itself out will tell us what the future will look like. It will also tell us who will be key drivers of the new energy transition.
We are already at peak oil (ref ASPO). It's only the economic meltdown and the drop in demand that's eased prices. This is good as far as climate change is concerned. We need to start looking at the energy descent the world is having to face. World economic systems based on economic growth have reached their sell by date. Sustainable growth is an oxymoron. James Lovelock's "Final Warning" will be largely ignored at the peril of our children and grandchildren. Makes friends with your neighbours.
Make friends not "makes".
Selfish actions won't cut it. No walls will be high enough to protect greedy lifestyles.