Guest: David Goldwyn, globally recognized thought leader, educator and policy innovator in energy security. He is the president of Goldwyn Global Strategies.
We start the year with one of the hottest – literally! – topics of the past year: energy. The green energy transition is advancing but the picture is far from clear with challenges on all fronts. What will 2023 bring?
2022 put energy in the headlines nearly every day. The list of interlocking energy issues is huge: Europe’s spiraling prices and gas shortages, the war in Ukraine and the cutoff of Russia’s oil and gas from world markets, canceling Nordstream 2, the rift between the US and the Saudis, COP 27 and the green energy transition to renewables are only a few of the issues that will spill over into this new year. – to name just a few. We broke down the complex, interlocking issues around the energy sector with our guest – and friend – David Goldwyn, a globally recognized thought leader, educator and policy innovator in energy security.
The energy sector transformed before our eyes in 2022. We began by asking what was the most important, new development in the sector over the last year. Goldwyn didn’t hesitate, “Without a doubt, the Russian invasion of Ukraine and the response of the West, in terms of sanctions, was the most landmark event in energy markets since 1973. […] Oil, gas, and power markets were all upended. Climate goals were set back temporarily. But the commitment, of Europe in particular, to the energy transition, has really been redoubled. […] It’s been tremendous and it’s irreversible.”
Many experts predicted that Europe would be in the throes of a massive energy crisis this winter. They predicted painful oil and gas supply shortages and dangerously high heating prices. Instead, Europe is breathing a “sigh of relief,” so far passing the Winter without much damage. We asked, were they successful, lucky, or is the worst still to come? Goldwyn responded, “Europe was both successful and lucky. But the worst may still be yet to come. […] The weather was warm, and China had Covid restrictions. So demand was down from other countries. Demand was down in Europe and they still had Russian supplies. Next year will be different because if Europe really swears off Russian gas, where will that substitute gas come from? And unlike oil, there aren’t massive spare caverns and spare capacity of LNG, which can come to the rescue. […] So they better hope for both warm weather and essentially continued recession in China. Otherwise, we could be looking at prices and shortages much more severe next winter than what we saw last winter.”
Altamar’s Peter Schecter followed up to ask about the impact of sanctions on Russia. He asked, “You’ve described the massive blow to Russia. But when you read about this, Russia seems to be finding export opportunities to China and to other countries. How deep is the hit to Russia?” Goldwyn answered, “I think it will be felt over time. There’s no question that last year Russian exports did not drop significantly. [… But looking at the price cap, it] depressed the price so much that Russians really weren’t making much money off of it, a lot of the price went to the insurer or the shipper. That worked. Russian crude is trading at a $25 discount to other crudes, and they have drawn down their sovereign wealth fund and their reserves significantly. […] What will happen over time is that Russia will either have to live with significantly lower revenues, or it will have to shut in production. And as it shuts in production, either of gas or of oil, then it will permanently suffer a loss in both revenue and relevance.”
So much changed in 2022. Who were the winners and losers? Goldwyn said, “I think Russia has been the biggest loser. They’ve destroyed their credibility as a reliable supplier. […] Europe unfortunately has been a big loser as well. They have suffered incredibly high electricity prices. They have suffered some de-industrialization. Growth has been a serious headwind. It has been a major price for a heroic stance. [… Lastly,] the developing world. In the developing world, you tend to have petroleum prices or electricity prices subsidized. The government pays the difference between the market price and the consumer price. So that’s enormous fiscal pressure on those governments, which deprives them of an ability to invest in development, and they are suffering.”
And the winners? Goldwyn said, “Relatively speaking, the United States and the Middle East have been winners. The US has an enormous domestic supply of hydrocarbons, and we’re largely disconnected from the global gas market. So that means our gas, and natural gas prices are not so high, and therefore our electricity prices are not so high. So we’re in a significantly better competitive position. And I would say for the time being the Middle East has benefited from high commodity prices. They’ve been a fiscal winner as well, but that’s unlikely to last for a long time.”
We’ve talked about a lot of changes, primarily triggered by the Russian invasion of Ukraine. How does the world map shift through these situations? Goldwyn said, “I think the honest answer is that it’s still very much in flux. I think we’ve learned a couple of things. [… For one,] China remains a hard power leader but its role in the world and its vulnerability have really been highlighted by this crisis, both their inability to manage a domestic health crisis, but they’re essentially dependent on Russia as their gas station. That puts them in a vulnerable position. The rest of their oil and gas is coming from the Middle East. […] If you’re trying to export to the world and you’ve aligned yourself with the world’s weakest economies and essentially in competition with the world’s strongest economies, it’s not clear that that’s a great long-term strategy. So, I think this has been a bit of a ‘Back to the Future’ moment in terms of geopolitical rivalry and great power alignment.”
What about this promised renewables revolution? It’s certainly a popular topic in the news. Will it accelerate enough to make a dent in climate change? Goldwyn said, “It’s too early to tell whether renewables can be scaled up and deployed globally in a way that will get us to net zero by 2050. […] The US and Europe are looking at scaling up offshore wind, onshore wind and renewable deployments. For industries that require fuel, like aluminum and steel, that really can’t use solar and wind to generate electricity, we’ve got cleaner forms of hydrogen. But we have to make progress on direct air capture and make it more cost competitive. We have to bring down the cost of sustainable bio biofuels and electrolyzers for hydrogen before that’s really going to be competitive. The real delta here is storage, battery storage.”
What about the Gulf countries? What role will OPEC plus play in 10-15 years as we move away from hydrocarbons? Goldwyn said, “In 15 years they will be less politically important. And they will need to diversify or they will become very poor countries. And I think that is not news to them on either front. That’s why I think there is a bit of a rush to maximize the value of hydrocarbons in the near term for them and to re-channel that money into diversification.”
Goldwyn listed the developing world as a loser in this shifting energy landscape. How do developing countries transition? Our guest responded, “There’s a lot of private capital, which if government will provide some credit support or some risk will invest in those countries. So, I think there’s real hope there and new mechanisms [for mitigation], and there’s a policy path forward. Adaptation is different. You can’t make money on adaptation. […] That’s where we really owe these countries this money. And we haven’t delivered yet.”
We finished with eyes firmly on the future. What does David Goldwyn think the energy world will look like in 5 years? He said, “The future of energy is bright. I would say in five years the world may not look a whole lot different than it does right now, but the change will be on the horizon. If you look at the suite of next-generation technologies, advanced Voltaics, faster windmills, fusion, battery storage, even new kinds of sequestration, right now we’re in the R&D phase, but five years from now, we’re going to have a real beat on what works and what doesn’t, and we will see that horizon. So, I’m optimistic, but five years- not so big a change, ten years- let’s hope it’s major.”
How realistic is the green energy transition? Depends on the timeframe and what technology you are hoping will be scalable. Find out more by listening to the latest Altamar episode, available wherever you get your podcasts. You can download the episode here.