Géopolitique, Réseau, Énergie, Environnement, Nature
The Front lines of the Green War
Issue #2
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Issue

Issue #2

Authors

Helen Thompson

21x29,7cm - 91 pages Issue #2, September 2022

War Ecology: A New Paradigm

Vladimir Putin’s bid to annihilate the independence of the largest state on Russia’s western border has produced a moment of convulsion for the whole world. When Russia is the world’s resource superpower, it could never have not done. Prior to 24 February 2022, Russia was the largest exporter of all petroleum products, gas, and wheat, the second largest crude exporter, and the third largest coal and potash exporter. Quite simply, any outcome to the war changes the geopolitical predicaments around energy and resources Russia’s power generates for Eurasia and Africa as well as the United States’ strategic choices. 

The cumulative shock to the world economy from Russia’s actions and the counter-actions to them is seismic, beginning with soaring fossil fuel energy prices. The Brent crude spot price – the European benchmark – spiked by around 25 per cent in a week. At the end of May, it stood at its highest level since 2012 before the shale oil began gathered momentum. Diesel prices in early May stood at twice as their previous peak in mid-2008 when crude oil prices were in inflation-adjusted terms around $70 a barrel higher. During the first fortnight of the war, EU natural gas prices rose by around 25 per cent. On one day in early April, Newcastle coal futures – the benchmark for the Asian market – jumped more than 6 per cent on news that the EU would impose an outright ban on coal imports from Russia. Although the conjunction of several governments ordering releases from strategic petroleum reserves and China’s lockdown of Shanghai lessened the pressure in April and much of May, even those markets that have been least directly affected by supply constraints have exhibited the strain: in mid-April US natural gas prices, which are largely insulated from international dynamics, hit their highest level since the peak of the last commodity boom in mid-2008. 

Rising energy prices quickly translated into high food and fertiliser prices. Since the war is disrupting the supply chains that connect some of the world’s most fertile agricultural land to the rest of the world as well as Russia’s exports of fertilisers, these markets also experienced their own shock. In March, the UN Food and Agricultural Organisation price index reached its highest ever level since it started in 1990. Already struggling with food security and energy shortages, a number of countries in the global south have sunk into an “everything” crisis. Probably, nowhere has the crisis been so overwhelming as for Sri Lanka. Needing to preserve dollars for essential food and fuel imports, Sri Lanka suspended foreign interest payments on 13 April. By mid-May, the new Sri Lankan Prime Minister Ranil Wickremesinghe, who had come to power after rioting forced his predecessor to resign, was laying out to his compatriots just how dire Sri Lanka’s economic prospects had become. Warning that ‘the next couple of months will be the most difficult ones of our lives’, he explained that the country’s foreign exchange reserves were decimated, petrol and medicines were running out, and long daily power shortages were inevitable. 

In any circumstances, Russia’s turn to war would constitute an inflection point. But this war began in already turbulent times characterised by a fossil fuel energy crisis, fault lines generated by Russian geopolitical power, and a bid to drive a rapid energy revolution away from fossil fuels. The stakes of the present war-shaped tumult only become comprehensible if that disorder is also understood as part of these longer turbulences. 

The fossil fuel energy crisis 

The prior fossil fuel energy crisis starts with the supply of oil in relation to demand. Here, the issue was beginning to manifest before the pandemic struck. In 2019, oil production fell for the first time in a decade, even as oil consumption rose by almost one million barrels per day. The fall in crude production in 2019 was particularly notable as natural gas plant liquids and other liquids increased. During 2021 recovery was slow, with production still lower for the year than for any year since 2014. Of the significant oil producers, only Canada, Iran, Libya, and Mexico supplied more in 2021 than 2020.

Unsurprisingly, the era of falling and then relatively low oil prices that had prevailed from the oil price crash in mid-2014 through the second quarter of 2016 had also ended before the pandemic. With Saudi Arabia having established an alliance with Russia to form OPEC Plus in 2016, two of the world’s three largest oil producers were co-operating to ensure a floor for prices. In the summer of 2018, WTI prices went above $80 a, the highest level they had hit since oil’s sharp tumble in the 2014 crash. Although, notwithstanding the fall in production, prices were lower through 2019, the world economy was then experiencing what the IMF termed a ‘synchronised slowdown’, with growth slighter than at any time since the 2008 crash. 

After the post-shutdown economic recovery began, the strains in oil markets quickly rematerialised. By October 2021, the WTI price had moved above $80 again; by January 2022, it was above $90. As early as the summer of 2021, the US and Chinese governments were openly worrying about the direction prices were headed. Just a month after OPEC Plus had enlarged production quotas, President Biden made his first request to the cartel to increase production further in August 2021. The following month, China released oil reserves for the first time from its Strategic Petroleum Reserve. With OPEC Plus unreceptive and China’s move leaving the market untouched, the US co-ordinated strategic reserve releases with China, India, Japan, the UK, and South Korea. This unprecedented co-ordination between the world’s two largest oil-consuming countries was the counter-part to the unparalleled co-ordination engineered by Trump between the world’s three largest oil producers to reverse the price slump in March 2020. Each move spoke to the problem that has bedevilled the world economy since the mid-2000s: most of the time, oil prices either are too high for oil importing countries or too low for producers. 

On the supply side, this oil crisis has several causes. Conventional oil – non-shale and tar sands production has been for the most part stagnant since 2005. Back in the early 2000s, the question of whether the world’s largest conventional oil field at Ghawar in eastern Saudi Arabia was in decline became politically charged. Then the Saudi state oil company Aramco was keen to debunk any such idea. But a bond prospectus published by Aramco in April 2019 revealed that Ghawar was only in a maximum production scenario able to supply 3.8 million barrels per day (bpd), 2 million less than market participants’ working assumption. Saudi Arabia’s fellow OPEC member Kuwait has more obvious production problems. In 2021, Kuwait still produced nearly 300 million barrels per day less crude than in 2019, representing a 10 per cent fall. In March 2020, a consortium of North American, European, and Japanese banks lent Kuwait $1 billion to help Kuwait increase its productive capacity. Meanwhile, Russia’s west Siberian fields had been in decline for around a decade by 2019.

As production at these large old oil fields became more difficult, relatively few new conventional fields replaced them. Discoveries have been trending sharply downwards since the 1960s. The last decade was no exception: annual conventional oil discoveries were just over a quarter in 2019 what they were in 2010 and only in one of the decade’s intervening years did they hit 50 per cent of the 2010 total. 

After the slump in prices in 2014, oil companies severely cut their investments. In 2021, upstream investment in oil and gas was only 50 per cent of what it was in 2014; most of that fall driven by the five western majors. 

At the start of the last decade, Iraq was the big hope for improving the conventional supply landscape. Iraq has the fifth largest reserves in the world and is the third largest producer in OPEC Plus. All its major fields are on onshore; production and the capital costs for producing in Iraq’s are very low compared to anywhere other than Saudi Arabia and Kuwait. In 2009, the Iraqi government had awarded oil contracts to various partnerships of the majors, Asian companies, and the non-state-owned Russian company, Lukoil. The then Iraqi government hoped Iraq could raise production from 2.4 million bpd in 2009 to 12 million bpd within 6-7 years. If, many in and around the global oil industry, deemed this overly ambitious, realism was taken to be 6-7 million bpd. Even this aspiration has proved excessively ambitious. Iraqi output hit 4 million in 2015. By 2018, it had reached only 4.8 million. In 2021, Iraq produced less oil than it did in 2020. 

The problems in Iraq have been pervasive. Early on, there was evidence the majors were doubting what could be realised in southern Iraq and were frustrated by the terms of the technical services contracts. In 2011, ExxonMobil signed a deal with the regional government in Kurdistan that led the Iraqi government to give an ultimatum that the largest direct descendant of Standard Oil had to choose between its contracts in Kurdistan and the rest of Iraq. The stand-off led to ExxonMobil selling some of its share of West Qurna to PetroChina and the Indonesian company Pertamina. The price crash in the second half of 2014 and the rise of ISIS the same year deepened the difficulties. With significant parts of its territory absorbed into the new caliphate and its revenues tumbling, the Iraqi state was beleaguered. The creation of OPEC Plus raised prices, but the new cartel also left Iraq with tighter production quotas for which the Iraqi government was supposed to compensate the oil majors without the fiscal means to do so. Although the Iraqi government declared ISIS territorially defeated in 2017, ISIS attacks on oil installations still continue, while other violence against western companies headquarters has also grown. By 2019, most of the western oil companies were looking for a way out or showing serious reticence about staying. Most consequentially, Shell withdrew from the Majnoon oil field in 2018, giving its operations to Iraqi-stated owned firm Basra Oil Company, while Shell and ExxonMobil have left the West Qurna 1 field. 

The return of the majors to Iraq from 2009 constituted a de facto experiment in whether western companies could return to the post-imperial Middle East. While the ongoing presence of BP and TotalEnergies, as well as the Italian firm ENI, is evidence that the European companies at least still see opportunities, the political terrain has turned out to be much more difficult than anticipated. Past history, as well as the internal devastation wrought by the second Iraq war, rendered this outcome predictable. But the fact that Iraq is one of the countries in the world most at risk of extreme weather from climate change could only intensify the problems of the bid to use Iraq to address the world’s oil supply problems. 

Without the hoped-for rapid resurrection of Iraqi production, the world economy though the 2010s depended on shale oil. US crude oil production (including lease condensate) increased from 5 million bpd in 2008 to 12 million bpd. But, by the end of 2019, it was possible that the shale boom was approaching its limits. After falling between 1980 and 2007, US proved reserves moved sharply upwards from 2008 when fracking started. After a dip in 2015, they grew at least 9 per cent a year until 2019 when they stalled. Much of the shale sector has struggled to recover after the pandemic-induced price collapse in March 2020. In part shale’s woes in 2021 were a function of investors demanding capital discipline after years of poor returns. What is unclear is just what kind of adjustment the sector and its investors can make now the old supply chains around Russian oil are disrupted. The US Energy Information Administration is forecasting US crude production to average almost 13 million in 2023. But of the shale plays, only the Permian basin – what is now the world’s largest oil field running from west Texas into south-eastern New Mexico – had surpassed its 2019 output by the end of the first quarter of 2022. The North Dakotan Bakken field, where shale oil began, is still producing around 20 per cent less than in 2019 and the mid-western Niobrara formation remains about 25 per cent down. Meanwhile, the Eagle Ford field in Texas reached a peak as early as 2015. 

Rather than being the primary cause of the oil crisis, the war is instead compounding structural problems between supply and demand that are only absent when economic activity is curtailed. Now, the war is bringing that underlying crisis into dramatically sharp relief. It would always be consequential to deploy sanctions that prevent the world’s largest petroleum product exporter from engaging in its usual business. Never before have the oil exports of either of the two large oil exporters been sanctioned in this way. After Khrushchev resurrected the Soviet export capacity, west Europeans accepted oil imports from the 1960s without interruption during the remaining crises of the Cold War, including the Soviet military intervention in Afghanistan and martial law in Poland. Even American imports of Russian petroleum products doubled between March 2014, when Russia annexed Crimea, and May 2021, just after the Russian military build-up on Ukraine’s border began. Seen from this historical perspective, it is quite extraordinary for anyone in Washington to consider that the US can use the war ‘downgrade [Russia’s] status as a leading energy supplier’, as one as one Biden administration official contemplated on 8 May.

Conditions in global gas markets prior to the invasion compound the likely consequences of any such aim. Here, China is pivotal. Between 2010 and 2020, China’s gas demand grew 300 per cent, accelerating from the latter part of the decade as China’s Ministry of Ecology and Environment made a push to move household heating from coal to gas. Through the course of the 2010s, China’s domestic production as a proportion of its consumption fell sharply to the point where in 2021 imports were well over 40 percent of the total. In 2021, Chinese demand for LNG grew at a staggering 19 per cent, as the structural shift to gas was reinforced by the post-pandemic economic recovery. During the course of 2021, China replaced Japan as the world’s largest importer of liquid natural gas (LNG), even as China’s imports through the Power of Siberia pipeline also increased. For other gas importing countries in Asia and Europe, this was a huge energy shock more than comparable in size to past oil shocks. In December 2021 EU natural gas futures were eighteen times higher than in January 2020, the last month before pandemic fears hit. 

Yet the crucial fact about China’s general energy strategy is its willingness to move all ways, including between Russia and the United States, to try to ensure that it has multiple sources of supply. Gas is no exception. When Putin and Xi Jinping met in Beijing, just prior to the invasion of Ukraine, they agreed that China would import another 10 billion cubic metres from Russia via pipelines. Either side of this deal, Chinese energy companies signed a string of sale and purchase agreements with US LNG firms, including two large long-term and one medium term deals with Global LNG. The deals in October 2021 brought to an end a period in which the US-China gas relationship was diminished first by the 2018-19 US-China trade war and then the pandemic. Seen in the wider picture, this development, allied to the co-ordination of reserve oil releases, suggested some complementarity of US-China energy interests, even as other more adversarial dynamics remained in place. 

The war has now sprung another shock on LNG markets, centred around the imminent entry of Europe’s largest economy and largest gas consumer, which could unsettle again the US-China energy relationship. It has pushed all three of the world’s largest export-oriented economies – two of which, Germany and Japan, are near entirely dependent on foreign gas and the other of which, China, in absolute volume consumes more gas than either – into a direct and intense competition for supply while giving American exporters and with them decision-makers in Washington more strategic options. 

Russian geopolitical power and the Ukraine fault line

Russia’s bid to conquer eastern and southern Ukraine that has catapulted this new gas world into being has a long prior geopolitical history with profound implications for Europe’s future. Post-Cold-War Europe was marked by a number of fault lines around Russia and Ukraine. Ultimately, these worked to weaken Ukraine’s security. Where the west-European-Russian energy relationship was concerned, history, far from ending with the fall of the Soviet empire in 1989 and the Soviet Union’s dissolution in 1991, began. Russia inherited the Soviet economy where oil and gas were the principal exports with pipelines that went through independent sovereign states sitting between Russia and Germany: Ukraine and Belarus in the case of the Druzhba oil pipeline and Ukraine in the case of the Brotherhood gas pipeline network. Russia also sold oil to western Europe from its Baltic ports. From the moment of Ukraine’s independence, Russian government looked for means to reduce gas transit through Ukraine. In 1993, the Polish and Belarusian governments agreed to build the Yamal Europe pipeline. Four years later, some Russian gas entered Germany for the first time without transit through Ukraine. 

For Ukraine, Russia’s ongoing need for transit became an effective material condition of independence, preventing Russia cutting off the country’s energy supply. Even before the Orange Revolution, the Ukrainian Parliament insisted that Ukraine should manage the pipelines in its territory as a matter of sovereignty. But with Ukraine having one of the most energy intensive economies in the world, Ukraine’s own energy needs were also an Achilles heel. In 1998, the Ukrainian government signed an agreement that tied Russian transit fees to the below market prices Gazprom charged to Ukraine. After Viktor Yushchenko became President in January 2005 to complete the Orange Revolution, Gazprom made its second move to reduce transit dependency by securing the agreement of two German energy companies and Gerhard Schröder’s second Red-Green government to build the first Nord Stream pipeline under the Baltic Sea. 

The 2008 economic crash increased Ukraine’s vulnerability. As the Ukrainian currency tumbled, Ukraine had to turn to the IMF. One condition of IMF credit was reducing the energy subsidies that on top of Russian discounts maintained living standards. Faced with the desperate need for lower energy prices, President Viktor Yanukovych, who came to power after the February 2010 election, did a deal with Moscow to extend Russia’s lease of Sevastopol until at least 2042 in exchange for a 30 per cent reduction in gas prices. 

Despite his reputation as a pro-Russian President, Yanukovych sought to use the shale revolution to change Ukraine’s energy predicament. This meant using western capital and technology to exploit Ukraine’s shale gas deposits in the Dnieper-Donets Basin in the Donbass and the Oleska field in western Ukraine. As well as agreeing in 2012 and 2013 contracts with Shell and Chevron for these contracts, Yanukovych also opened up offshore gas exploration in the Black Sea at Skifska to Shell and ExxonMobil. 

In this manner, Ukraine became a site of resource fault lines in Europe on top of the transit ones that had existed since 1991 at a time when Ukraine was negotiating an associate membership deal with the EU and Ukraine’s immediate energy difficulties remained an acute vulnerability. The fact that domestic prices for consumers were subsidised and heavily regulated constrained the ability of Ukraine to receive substantial and sustained financial support from both the IMF and the EU as each demanded the sector be liberalised. When Ukraine faced a financial crisis in late 2013 at time when the EU wished to finalise the agreement for associate membership, Putin stepped in and offered Yanukovych a large reduction in gas prices and to buy $15 billion worth of Ukraine’s sovereign debt. In exchange, Yanukovich ditched the EU agreement, setting in motion the events that produced the Maidan Revolution, Russia’s annexation of Crimea, and violent attempt at secession by pro-Russian factions in Donetsk and Luhansk. 

The 2014 crisis smashed more than Ukraine’s territorial integrity; it rewrote the energy landscape in and around the country. With Ukraine in tumult, the western energy companies suspended their activities in the country. After several bitter disputes mediated by the EU, Ukraine stopped buying gas directly from Russia in November 2015, instead purchasing what were largely Russian imports from several eastern EU members, principally Slovakia. On the transportation side, the 2014 rupture led Putin to intensify his moves to cut Ukraine entirely out of Gazprom’s transit of gas to the EU by committing to new pipelines under both the Baltic and Black seas. Moreover, the depth of the crisis in Russia-Ukraine relations could only incentivise Germany and the central and southern Europe states to support Putin’s new Nord Stream 2 and Turk Stream projects to protect their gas security. 

Russia’s move towards annexation in 2014 also reconfigured Russia’s geoeconomic orientation. In adjusting to the sanctions imposed by western states, Putin imposed a ban on food imports from the US, EU, and Canada and cultivated more domestic production. Complete control of Sevastopol and the central north Black Sea coast from March 2014 allowed Russia to develop the port infrastructure required for it to become a significant agro-food exporter, especially to the Mediterranean basin. By the time Putin turned to war in 2022, Russia had become the world’s largest wheat exporter, taking nearly a quarter of the market, as well as the largest fertiliser exporter. 

Turning to war has only strengthened Russia’s capacity to disrupt food flows and ultimately divide NATO members. With the Russian navy quickly closing the Kerch Strait that connects the Azov Sea to the Black Sea and patrolling the waters around Odessa, Russia was able to stop Ukraine using its ports when before the war 80 per cent of Ukraine’s exports were transported across water. Since Ukraine is a significant food exporter, not least of wheat, the Russian blockade has translated directly into a near catastrophic food crisis for some countries in the global south, where supply is short and prices high. What might be done to ameliorate this food crisis quickly turns back into a complex issue for NATO since Turkey would have to give permission to allow NATO naval forces into the Black Sea and if it did the risk escalation would be unacceptable to Germany and France. 

Neither Russia nor the rest of the world cannot escape what Russia has geopolitically set in motion. If Russia were to retain its present control of most the north coast of the Black Sea, a good part of the Donbass, and the city of Kherson on the Dnieper Estuary, the war it will have fought to secure this territory will have dramatically strengthened Ukrainian nationhood and external support for an independent Ukrainian nation-state. That nation-state might well be materially unviable without a change in the present military balance of power in southern Ukraine: aside from any other consideration how Ukraine is going to import gas in a world in which Europe turns to seaborne gas if Ukraine is left landlocked beyond Odessa and Russia controls the waters around Odessa? But precisely for this reason, a short-term Russian victory that landlocked Ukraine would mean the war could not in fact end without western countries abandoning Ukraine, an outcome that neither the EU nor NATO will tolerate. 

The stalled energy transition

The weight of Russia’s energy power is testimony to the ongoing centrality of fossil fuel energy to the world economy and everyday life. The energy transition, which if successful would in fact be an energy revolution, is proving thus far to be very slow. In 1992, the year of the Earth Summit in Rio de Janeiro, fossil fuel energies constituted 87 per cent of total world energy consumption. Now, they constitute 84 per cent. Without technological breakthroughs on storage, solar and wind remain intermittent primary energy sources for generating electricity, and, even if personal electric vehicle sales are rising, the transport on which the world economy runs – ships and trucks – requires oil products. Germany, which has in one way or another been committed to an energy transition since the 1980s and where less than 50 per cent of the electricity mix comes from fossil fuels, still used fossil fuels for 77 per cent of its primary energy consumption cent in 2020. While, by contrast, the practical solutions for replacing gas in household heating exist in heat pumps and serious insulation, governments have not moved to convince citizens of their necessity or committed the funds to the work required. 

Europe’s issues around the transition in electricity generation were very evident during 2021. Through the late winter, spring, and early autumn of last year wind speeds were often low. As a relatively narrow northern island, the UK has some of the most propitious conditions for wind power in the world, but the UK wind company SSE reported that between April and September 2021 its renewable assets that centre on onshore and offshore wind produced 32 per cent less power than it expected. With wind levels weak, power stations had to use more gas. By autumn, this imperative increased demand at a time when natural gas import prices were spiking under pressure from the China shock and Gazprom’s unwillingness to deliver additional supply. 

Rising fossil fuel energy costs simultaneously invoke a desire to hasten the energy transition and, in serving as a reminder about how fossil-fuel dependent the world still is lead governments to prioritise whatever form of energy the immediate moment requires. China’s energy crisis in the autumn of 201, which began with disruptions around coal and saw electricity rationing in 20 provinces between September and November, indicative of this predicament. Worried about from just where energy to meet demand was coming, the Central Committee of the Chinese Communist Party and the State Council issued new official guidance that warned against ‘any excessive response’ in reducing carbon emissions.

The war has also exposed some harsh realities about the energy transition, not least the sustainability of present worldwide energy consumption. Engulfed in its autumn 2021 energy crisis, the Chinese leadership promised a ‘comprehensive conservation strategy’ and a strategic aim of ‘appropriately control[ing] total energy consumption’. By contrast, for western countries, the memory of the politics of the 1970s make appeals to sacrifice extremely politically unpalatable. If some leading European politicians like Mario Draghi have been willing to suggest that citizens should use less energy to render energy sanctions against Russia feasible, none has been quite willing to suggest this may be the new normal to advance the energy transition.

In so enhancing the stakes, war always brings the hardness of here and now into dramatic relief while releasing chaotic forces. By contrast, the way governments were pursuing the energy transition was more an attempt to suspend the present and jump into the future by sheer force of will. European governments have new deep geopolitical reasons for reaching for the future they already desired where, as Merkel said in January 2020, Europe would become ‘the first continent to be CO2 free’. In the geopolitical and economic necessity of oil lay subordination. In the hope of solar and wind energy plus electrification lay Macron’s bid for European sovereignty. But the war could not have made it clearer how tough any such material change is. Energy constrains even those who pursue war and those subject to it: Ukraine is transporting Russian oil and gas to Europe through its pipelines and Russia is paying Ukraine to carry those exports. Where energy is concerned, even the transformative power of war has its limits.

The choices now are starker. The commitment to a different energy future is already inhibiting Germany’s pursuit of non-Russian gas supplies in the present. In March, the German Economy Minister, Robert Habeck, headed to Qatar to try to secure an LNG deal. When an agreement was finally struck on 20 May, Germany only had a Qatari commitment for gas exported from Qatar’s American Golden Pass plant from 2024 and further discussions about long-term supply. A good part of the problem is that Qatar wants a 20-year-plus deal and Germany wants to be out of the gas market before 2040. 

More generally, the question of whether governments and citizens will have to face the supply constraints about fossil fuel energy in relation to the ecological imperatives of the energy transition is getting closer to an answer. Micawber-like, western politicians may hope something will turn up. In the global south, where energy rationing is already a fact of life, reality already presses much harder. By one means or another – whether by the war or by trying to reduce carbon emissions more rapidly or by recession – western countries are heading to reduced energy consumption.