IS OIL DEAD? LONG LIVE OIL! WHAT KIND OF OIL?
The President of Global Energy Association Dr Sergey Brilev talks about why now is a good time to start putting together a book on 10 breakthrough ideas for the next 10 years.
…People do change. I recall vividly how by the end of his tenure at the head of Russia’s former electricity monopoly Mr Anatoly Chubais told me that despite the attractiveness of alternative energy sources (wind, sunlight, etc.), there is still nothing to compare with conventional hydrocarbons (oil, gas, coal). Only they are reliable.
But, then last week with the help of RUSNANO, which is now headed by the same Anatoly Chubais, the Vesta plant in the city of Ulyanovsk on the Volga River produced a batch of nearly five dozen giant blades (62 meters long) for wind power stations. And for the first time ever they were not shipped to the Astrakhan Region or Kalmykia, where this merchandise used to go. They were instead exported to Denmark.
Let’s leave out the amusing detail that Chubais has repeatedly admitted, that Denmark is where he likes to spend his holidays, because no one recognises him there. And even though Chubais’s actions sometimes tend to be a little sentimental, this can be easily overlooked since the first delivery abroad of such blades from Russia is to the Kingdom of Denmark, which is widely regarded as the home of wind energy. And this means that the Vesta plant (together with its partners in the Rostov and Nizhny Novgorod regions, where this production is also localised) has reached a strong quality level.
Yet, right at the time when these blades are being shipped from the Volga to the Baltic, first Dr Alexander Dynkin of the Institute of World Economy and International Relations of the Russian Academy of Sciences (IMEMO), and then a Nobel Prize winner, Chairman of the Global Energy Prize International Award Committee, Rae Kwon Chung (South Korea), pointed out that at the current level of oil prices, the future of alternative energy is being called into question. Incidentally, both comments have already been posted on our website. But now let’s take a look at the reasons behind these statements.
Indeed, why build wind stations if fuel oil is cheap again? Well, and if fuel oil is old-fashioned, don’t natural gas prices depend on oil prices? So, let's build classic gas-fired plants! Finally, why invest in the creation of a network of charging stations for electric vehicles, if again it has become cheaper to refuel a regular car with an internal combustion engine? By the way, it is widely believed that in the United States the price of gasoline and the price of oil are closely correlated, while in countries such as Russia and Britain, the tax component predominates in the price of automobile fuel. However, this week wholesale gasoline prices went down in Russia as well.
Indeed, both Dr Dynkin in Moscow and Chung in Seoul shared their opinions with me before the May WTI contract turned negative on the evening of Monday April 20. Let’s not forget that aside from oversupply, price fixing may also have taken place. And let’s also leave it to the conscience of the bloggers who went ballistic about WTI on Monday night, overlooking and ignoring June Brent futures (not to mention Russia’s flagship Urals blend).
But the fact is the “new normal” price is far lower than it was at the beginning of the year. However, on Tuesday night Brent logged even higher gains. As a result, both shale oil and non-conventional (alternative) energy sources have become either not very profitable or completely unprofitable fun. Or maybe not?
…On that same Tuesday night, a most unexpected question came to me from perhaps the sharpest political thinker I know in Latin America. Gerardo Bleier, Vice-President of the Bering-Bellingshausen Institute for the Americas (Montevideo) sent me the following text message: ‘Is this the end of the petrodollar?’ Bleier lives and works in Uruguay, where there is not a drop of the country’s own crude oil. That said, it is also one of the first countries, which, back in the 1920s, experimented with what was called “green combustible” (a mixture of ordinary gasoline and sugar cane ethanol), and ever since ANCAP, a state-run company, has exercised a monopoly on alcohol, cement and oil.
These are not the only background considerations. Both Bleier and I have noticed a wave of very similar post-OPEC++ publications in such different newspapers as the London Financial Times and the Beijing China Daily. Both claim that current low oil prices will boost alternative energy. How can that be?
It seems that I found the answer to this question, while corresponding these days with the above-mentioned Rae Kwon Chung. I asked him how to "sell" the idea of rolling out non-conventional energy for the developing world, since everyone understands that even in times of high oil prices, the switch to an alternative source in northern countries is driven by massive government subsidies. Incidentally, the point is not that even in northern countries the corresponding budget lines will not be sequestered, and in southern countries they could only dream of such government outlays. Chung agreed with me, but pointed out that the level of subsidies for the conventional hydrocarbon industry is even higher. He also complained that no matter how many times G7 and G20 leaders agreed to redirect these subsidies, no action would be taken. Actually, this is the difference between Chung and Dynkin. Dr Dynkin states that it is not the sunset, but rather just a pause in the development of alternative energy. People like Chung would like to change that.
Nor would I doubt the idealism of the authors of articles in the Financial Times and the China Daily. But the way I see it, this is a harbinger of a new battle for government subsidies, especially considering the good PR background. It’s true that those of us, who are under lockdown, can only see the dolphins who have returned to the canals of Venice (as it happens, they were actually filmed off Sardinia, several hundred miles away), on TV or our computer screens. But those dolphins are nice! No less impressive are the “before and after” maps ranging from Northern Italy to the outskirts of Wuhan, which show how poisonous industrial emissions have disappeared. Even in Moscow record levels of clean air are being recorded following the introduction of anti-virus regulation reducing traffic flows.
Now, on this foundation, investors will build a new magical palazzo, on the facade of which they’ll draw the motto ‘Let's make the world cleaner’. The redistribution of taxpayers’ money will only be in fine print. But even so, one would have to be deranged to oppose the fight against further environmental pollution.
On the other hand, looking into the future, we understand that oil prices will recover not tomorrow or the day after tomorrow, but further down the road. People of my generation have seen this happen before. It means that a conversation about the balance between conventional and alternative energy will once again be back on the table: in certain areas it might make sense not to erect power lines but set up wind stations or solar panels and vice versa. As a matter of fact, Chung has his own solar panel at home. So actually it looks just like what is laid out in the UN Sustainable Development Goals (SDGs): affordable and reliable energy.
But then again, the same UN SDGs refer to energy as being clean. And here those who provide us with electricity and heat, burning hydrocarbons, after dolphins appeared in “Venice” and a clear sky can be seen over Moscow, have few alternatives: they will have to think even more about the environmental side of the issue. But, in the end, don’t cherry blossoms bloom even close to coal-fired power plants in Japan, where they run using the right kind of filters? Of course, we need to sit down and calculate it, but I’m sure that the redistribution of subsidies may not be based on the principle of “one substituting the other”.
So here we are taking advantage of the fact that all of our laureates and members of the International Award Committee are sitting at home. We at the Global Energy Association have now accelerated the work that our co-founders have asked us to do: we’ve started putting together a book entitled ‘Ten breakthrough ideas in the energy sector for the next ten years.’
Notably, in the world of scientists the selection of topics does not depend on their passports. Last year’s Global Energy Prize laureate Frede Blaabjerg lives in Denmark (where the blades were just sent from Ulyanovsk), but of all the topics he chose network digitalisation (whereas it is a secondary issue what kind of fuel power plants use to generate the electricity that goes to these networks; Blaabjerg does support decarbonization though). He notes that in recent days this issue has been up for debate in the Danish Parliament (the Folketing). The very first survey, conducted by our partners at the Bering-Bellingshausen Institute among Latin American power engineers, shows that they, as in Europe, are interested in the issue of electricity storage (with the proviso that in Argentina they are primarily concerned about the future of shale). Meanwhile, Tom Blees from the United States suggests taking a closer look at the idea of floating nuclear power plants, which may seem anathema somewhere in Germany. Well, if there is such a difference of opinions even in the West (North), then it is important to sit down and talk about the range of options and different scenarios. That’s exactly what we are doing.
The fact that pretty dolphins have showed up, etc. is the result of an ugly situation where industrial production has ground to a halt. Meanwhile, sustainable development is, first and foremost, about creating jobs. Solving environmental problems through mass shutdown and unemployment is clearly the wrong way to go. After the pandemic, the success of politicians will be measured by the number of jobs saved/created.
And finally. Russia is not as windy as Denmark. But that’s a topic for another column.
P.S. Rodney John Allam (UK), the 2012 Global Energy Prize laureate, the Global Energy Prize International Award Committee member, Member of the IPCC, awarded with the Nobel Peace Prize in 2007.
'The drop in oil prices is the direct result of the massive drop in oil demand with 3 or 4 billion people in lockdown world-wide and a very large drop in all areas of human activity. The conflict among the major oil producing nations over planned cuts in production have added to the problem by causing over production, particularly in Saudi Arabia, to secure market share. Present levels of oil production are completely unsustainable since available storage capacity world-wide is rapidly being filled. The US with large land-locked oil production has an immediate problem as their emergency storage facilities fill up and the same problem is likely to occur in Russia. High cost oil production such as shale oil in the US and offshore oil production have costs above sale price. Exploration and new production investments will be drastically curtailed. Government controlled oil companies will ride out this economic storm but commercial oil companies will quickly run into financial difficulties depending on their present production costs. Only the very strong will survive'.