Geopolitics of Natural Gas

Excerpt

The world is experiencing the worst energy crisis since World War II. The energy crisis has contributed to the current global economic recession and world food crisis. While many Western policymakers are putting the blame for the energy crisis on geopolitics, many other factors contributed to its emergence. These include longterm underinvestment in oil and natural gas production, public finance policy of denial of investment in fossil fuels, market design, and energy policies of governments around the world. In illustration, Europe experienced two major energy crises in the two winters (winter 2020/2021 and winter 2021/2022) prior to the current Ukraine-centered crisis. Thus, in considering how to address the energy crisis, it is important to recall that it started before the current geopolitical challenge in Ukraine.

The current natural gas crisis has significant geopolitical and economic implications. Energy security entails not only securing energy supplies, but also securing energy at an affordable price. In response to the current crisis, Europe has been able to replace gas molecules with gas molecules, but at a price that will not allow many industries to continue to operate. Liquefied Natural Gas (LNG) now accounts for about 15 percent of European gas consumption. While this has reduced Europe’s geopolitical vulnerability of reliance on Russian gas, it has come at a price that is not sustainable to European industry, since LNG over time is much more expensive than pipeline supplied gas. In addition, increased European demand for LNG has raised global prices, leading to the pricing out of many medium and low-income countries, in turn leading to extensive electricity blackouts and social unrest in multiple countries.

Despite the raging global energy crisis with a focus on natural gas, Western governments are still refraining from engaging in the geopolitics of natural gas and other energy that is in use today. The recently released U.S. National Security Strategy mentions “energy” 50 times, but over half the times in combination with “clean energy,” “renewable energy,” or “energy transition,” rather than the energy in use today. The strategy doesn’t once mention natural gas. All mentions of fossil fuels in the strategy are negative, even though 75 percent of U.S. energy consumption is from fossil fuels, the U.S. military relies on fossil fuels, and the United States is the world’s largest producer of oil and natural gas in the world. Even the U.S. National Defense Strategy relates to energy mostly in the context of renewable energy, low-carbon energy, and reduction of energy consumption.

Instead of addressing the current energy crisis, the United States and to a certain extent Europe are doubling down on the idea that renewables will solve the entirety of their energy security problems. This is despite the fact that renewables have their own set of geopolitical challenges, in addition to price volatility. Moreover, their unrealistic expectation of current renewables to provide increased supplies were a major factor in the current energy crisis.