Western hegemony, energy transition and green agenda: farewell to illusions

Dear participants and guests of the Forum,

I would like to express my gratitude for your participation in the XVII Verona Eurasian Economic Forum. I would also like to thank His Highness President of the United Arab Emirates Sheikh Mohamed bin Zayed Al Nahyan and His Highness Emir of Ras Al Khaimah Sheikh Saud bin Saqr Al Qasimi for creating excellent conditions for work. It is very symbolic that our meeting this time is held in this particular place, which is one of the most ancient centers not only of Eurasia, but also of all mankind, and which for more than seven thousand years has remained a junction of civilizations and cultures.

The topic of our discussion today is “Farewell to Illusions.” Today it is already obvious that the US has failed to exercise its assumed authority of a leader and has not provided the necessary conditions for maintaining a just world order. It is also obvious that the US has allowed the loss of leadership in the scientific, technological, industrial, and financial spheres, which was hard to imagine some 20-30 years ago. This resulted in the decrease of the United States dominance in the economy and trade. The formerly unquestionable influence of the US on the world political processes is eroding as well. As a result, using today its status as a global hegemon, the US bets heavily on creating special conditions for its economy at the expense of other market players, including its allies.

This situation was long ago described by the greatest ancient Greek historian Thucydides, who is regarded as one of the founders of historical science. In his work “History of the Peloponnesian War,” he described a classic trap, which is that the hegemon’s fear of the emergence of alternative global centers of power inevitably leads to war with them.

This war has already begun. It is developing differently on different theaters. Somewhere it is hot, and somewhere it is hybrid: in the sphere of technology, climate, finance, trade and culture. Unfortunately, today the global energy is no exception and has become one of the targets and tools of this hybrid war.

The modern energy system is based on fossil fuel, which account for more than 80% of all primary energy consumption. It was fossil fuels that made the global energy system the basis of modern life. Over the past 200 years, the use of hydrocarbons has made energy more affordable, which, in turn, along with health care and human nutrition improvements, has increased life expectancy from 30 to 70 years, and the share of world population living in extreme poverty has fallen from 90% to 10%.

The modern energy system also has a number of features making it indispensable to human life: greater energy capacity and transportability; fossil fuel features high energy flux density; the use of fossil fuel yields much higher investment efficiency measured in energy units.

High efficiency of the modern energy system has entailed a 1.5-fold increase in global energy consumption in the past 20 years alone. We also should not forget that global energy consumption will be increasing, as demand from data processing centers continues to grow. Investment bank Goldman Sachs estimates that global power consumption by data centers could grow two and a half times by 2030 to more than one thousand terawatt hours, equal to nearly half of Europe’s consumption.

Oil accounts for more than 30% of the global energy consumption, coal – 25%, gas – 22%, and it appears that we are still far from the peak demand for the fossil fuel. By 2035, J.P. Morgan investment bank expects global oil demand to increase by nearly 6 million barrels per day, driven by consumption growth in India and developing countries.

Today we are being urged to abandon fossil fuels, with reference to the human influence on climate. Proponents of this theory omit the fact that the last ice age ended less than 200 years ago, and the current warming period is a part of the natural environmental cycle. This argument became the basis for the declaration “There is no climate emergency,” signed by about two thousand scientists from around the world, including Nobel Prize winners. An analysis of the impact of such mechanisms shows that a 50% increase in atmospheric carbon dioxide compared to pre-industrial times can be responsible for an average temperature increase of only 0.15 degrees Celsius. Moreover, the increased content of carbon dioxide in the atmosphere has a positive effect on vegetation. For almost 30 years of observations, the 70% increase in the leaf surface of the planet’s vegetation is due to the effect of carbon dioxide fertilization.

The energy transition will require restructuring or building components of the real, not virtual, economy from scratch: infrastructure, technologies, supply chains, and more. Increasing the share of renewable energy generation requires addressing in advance the challenges of grid stability, storage capacity, and smoothing consumption peaks.

It is generally believed that electrification of vehicles can substantially slow down climate change, as vehicles account for more than 20% of all carbon dioxide emissions from the global energy system. However, experts estimate that today the level of emissions from the manufacturing of an electric car is 35-50% higher than emissions from the manufacturing of a car with an internal combustion engine. The main difference in emissions comes from the making of the battery pack, as well as steel and aluminum. To meet the carbon targets of the Paris Agreement, the emissions of the electric vehicle production chain must be reduced by 81% by 2032, which is simply not possible.

By 2050, the world’s electric vehicle fleet will need to grow more than 30-fold from 30 million to one billion in order to meet carbon targets. It is clear that the electric car boom in the West is coming to an end: due to the lack of demand, leading manufacturers are forced to sell at a loss, and in the US, the price for a used electric vehicle has fallen by 25% in less than two years. In the future, new electric vehicles will compete for access to electricity with data centers that will need more than 1 thousand TWh of electricity as early as 2030.

An additional significant challenge should be the conversion of cargo, air, and waterborne transportation to electricity. To achieve the energy transition targets, the number of electric trucks will have to increase more than 100-fold to over 40 million by 2050. I don’t think that’s realistic.

In real life, business votes with money, and the “green” dollar is running from the “green” agenda with lightning speed. Over the last three years, Western stock markets’ enthusiasm for the renewable energy sector has been nearly waned. Shares of clean fuel companies have fallen several times in two years. The reasons for this attitude on the part of investors are the inability of green economy companies to achieve their goals on time, also because of rising costs, delays in the release of government loans, and lack of new financing.

The frenzy, artificially created around the climate change issue, is already causing some blatant malpractice. Thus, according to the recent investigation held by the Oxfam international association, the World Bank failed to account for nearly 41 billion dollars spent on climate change projects.

Recently, Russia has been regularly and groundlessly accused of undermining the foundations of the energy market. However, over the past 10 years, it is our country and its partners who have made the greatest contribution to stabilizing the global energy market, often sacrificing their own strategic interests. In 2016, OPEC’s share of the oil market fell to 36%. It was at this point that Russia, together with its partners, created OPEC+, which had a 55% share. This is what made it possible to stabilize the market and protect the interests of producers.

OPEC+ decisions to stabilize the oil market in 2016 and 2020 substantially supported the US shale industry. It was the stabilization of the oil price at a sufficiently high level that allowed US companies to pay off debts, increase production, invest in R&D, and turn the US into an energy powerhouse and a leading energy exporter.

The favorable political factors should render further support to American energy sector. President-elect Trump promised to strengthen the position of US oil and gas. In order to achieve this, he plans to lift restrictions on hydrocarbon production and the construction of LNG plants.

The same mistake as using the dollar as a sanctions tool is the policy of forcing Russia out of the energy market, which will inevitably lead to the world economy collapse. With its huge and diverse resource base, Russia occupies a special place in the world. It is namely this unique resource base that ensures the reliability of our supplies to foreign partners in the long term. In recent years, a special role in the development of Russia’s resource potential belongs to the Arctic. This region can rightfully be called a treasure trove of energy resources not only for Russia, but also for the whole world. Today the Arctic contains more than 20% of the planet’s undiscovered oil and natural gas reserves. At the same time, the Russian Arctic holds 80% of the world’s Arctic oil and gas reserves.

As our discussion today is devoted to the Eurasian space, where the specifics of integration processes and national interests are built on trust, respect, and continuity, the potential of our cooperation is enormous, and we are only at the beginning of its implementation. As His Highness Sheikh Zayed Al Nahyan, the first President of the United Arab Emirates, said: “Unity is the path to strength, honor, invulnerability and common wealth.”

To read the full text (PDF in English) of Igor SECHIN’s keynote address at the 17th Verona Eurasian Economic Forum on Pluralia’s website follow this link