Steven Mann sees oil remaining a leading fuel in the global energy mix until 2050. Countries have still not figured out how to manage the social cost of the transition.
London (Brussels Morning) Steven Mann sees oil retaining a prominent position in the global energy mix at least until 2050. The transition, in his view, will require an effective carbon tax but the broader question of how society will manage the cost of the transition does not have a convincing answer.
American hegemony was very much founded on Washington’s role as a regulator of global energy markets. The rise to power of the dollar as the global reserve currency is very much intertwined with its central role in international energy markets. But in a world in which major economies seek to leave oil behind, there are significant questions for the future of American power in the world.
We talk to Steven R. Mann, until recently Exxon Mobil’s executive, who joined the energy sector after a long and distinguished career in the State Department with in-depth engagement in energy geopolitics, at one point managing all U.S. Government diplomatic efforts on Eurasian oil and gas issues as Coordinator for Eurasian Energy Diplomacy (2008).
Ambassador Mann was the senior US official handling Caspian energy issues and was heavily involved in realising the Baku-Tbilisi-Ceyhan (BTC) pipeline. In 2003, he served on the staff of the Coalition Provisional Authority in Iraq, ending the UN Oil-for-Food Programme and transferring its assets and programmes to the new Iraqi government.
Ambassador Tedo Japaridze (TJ). As an energy market observer, in your view, for how long will fossil fuels have a place in the American and European energy mix?
Ambassador Steven Mann (SM). Fossil fuels will be around for a very long time, even in the European and American energy markets, where there’s a concerted push for renewables. There are rational reasons for this, including the substantial energy density of gasoline and the widespread infrastructure that’s already in place for petroleum and natural gas. The US Energy Information Agency projects that in 2050, petroleum will still be the most-consumed fuel in the US. Similarly, US natural gas consumption, in the EIA’s view, rises from roughly 30 trillion cubic feet in 2020 to 35 trillion in 2050. Take a look at the International Energy Agency’s World Energy Outlook, and it reaches similar projections. Coal, though, is in decline, and that particular fossil fuel is going to be mined less and less in the US unless there are breakthroughs in clean coal technology.
To what degree will there be a transition away from fossil fuels in the next thirty years? The best answer depends on figuring out what’s realistically possible, from a technology standpoint and from an economic standpoint.
We’ve seen how much renewable and low-carbon technology has gained momentum (although with wind and solar power generation, there’s still the intermittency problem), and innovators keep pushing forward on technological advances, from battery technology to cost-effective power generation to carbon capture. Stateside, there’s a lot of buzz now about the Biden Administration funding renewable infrastructure investment.
But that’s the tech side — what about the economic issues? Renewables depend heavily on government directives and subsidies, while oil and gas, still remain competitive in developed nations’ energy mixes. So, at the end of the day, nations can have whatever energy mix they want, but someone will have to pay for the choices.
This is the challenge not just for Europe and the US, but for all of the Paris Accord parties. The signatories have congratulated themselves on their radical pledges of emissions reductions, but achieving those pledges is not binding, and country after country is confronting the facts about what it will take in money and effort to achieve those declarations.
Consider the wise words of the International Energy Agency’s head, Dr. Fatih Birol: “More and more countries are coming up with net zero commitments, which is very good, but I see a huge and growing gap between the rhetoric and the reality.”
My own strong preference to tackle the issue is for a carbon tax. Let governments put a price on carbon and then let individuals and businesses make their own decisions on energy. Cycle the revenues back into support for low-income consumers affected by what would probably be a regressive tax.
And finally, remember also that fossil fuels are about more than the energy mix. Petrochems will be part of life for the foreseeable decades: in plastics, in fertilizer, in the myriad chemical compounds that modern economies use. It’s hydrocarbons that produce the hand sanitizer, PPE and medical plastics that we’re using to combat the pandemic.
TJ. What will be the effect of the declining role of energy commodities on American power?
SM. Maybe I’m contrarian here — I’m not a believer in a correlation between commodity wealth and geopolitical power. With the fracking revolution, the US became the dominant swing player in oil production and switched from being a natural gas importer to a gas exporter, but I haven’t seen how those developments impacted American power. Call me a traditionalist: I think that geopolitical power comes from the wise application of statecraft across military, diplomatic and intelligence arms, underpinned by a prosperous national economy.
If the US were, say, a petrostate, where the national economy depended heavily on hydrocarbon exports, then I’d have a different answer. Production-heavy economies will have to assess carefully how future energy markets and prices will affect their national wellbeing. If you believe that hydrocarbon demand will moderate or decline by mid-century, that will have profound effects for Middle Eastern producers, whose economies are heavily commodity-dependent. The effects will be felt also in Russia and the Caspian. Far less so for the United States and Europe, which have highly diversified economies.
TJ. What is the future of the oil and gas majors in a world in which the Norwegian Sovereign Fund is no longer allowed to invest in fossil fuels?
SM. As I understand it, the Norwegian Sovereign Fund decision is a diversification one. Since Norway is still a major producer of hydrocarbons, it doesn’t make sense for the country to in effect double up on market risk by investing the proceeds of oil in oil. It is, however, a question for a number of other funds, such as pension funds, which are feeling pressure for members to shun fossil fuel investments, not on financial grounds but for stated ethical reasons. I think that’s short-sighted decision-making, which shuns the positive role of hydrocarbons and ignores the issue of energy poverty.
Oil and gas companies do important work in powering energy-hungry economies, especially in the energy-short developing world. If you’re leading a comfortable life in Cambridge or Portland, you take cheap, reliable energy for granted, and it’s easy to call for divestment. But if you’re among the billion people who have no access to electricity, or the 2 ½ billion who use solid biomass to cook their meals, maybe you’re not going to be applauding Extinction Rebellion the next time it shuts down London streets.
TJ. In a world where there is competition for arable land and water, do you see the desert as gaining real estate significance?
SM. I actually don’t see the desert as such gaining national or geopolitical significance, with one caveat: whether new agricultural technologies progress that are able to reverse or annul the effects of desertification. This emphasises, of course, the need for tangible, effective strategies to address climate change.
Arable land will continue to be prized, and it’s terrific to look at the advances that technology has made in generating productivity gains for cropland. What farmers do is amazing. I’d personally like to see much more support in the United States for small farms, as opposed to big agriculture. There’s a lot the US has to learn on that score from Europe.
TJ. How did the Second Karabagh War impact the energy security perspectives in the Black Sea and the Caspian basin areas?
SM. This is a pretty interesting question. The Azerbaijani government stated that there was an attack on the BTC pipeline by rockets and cluster bombs, but that it fell short of the target. There’s also a report of an attack on the Baku-Novorossiisk pipeline. If we take those reports as accurate, then we’ve had a real-life stress test for energy security, what we saw was that neither the upstream facilities in the Caspian nor pipeline transport was disrupted by the fighting.
I’m hopeful that now, with the cessation of combat, and with the presence of a peacekeeping force, we’ll see greater and greater degrees of stability and problem-solving on the remaining aspects of the conflict, and that we’ll even see in the years ahead, steps toward the much-needed normalization of ties between Armenia and Azerbaijan. Among the tragedies of Karabakh is that people-to-people contacts have long ceased.
BTC and the SCP gas export route have become old news, and we should applaud that fact. It’s what we were working for since the 1990s, creating a modern regional infrastructure. Boring is good when it comes to pipelines, and those routes have reliably been delivering energy across the Caucasus and to foreign markets for fifteen years. They were designed and built to be robust in the face of attacks or natural phenomena.
The interesting questions for regional energy now have shifted eastwards — it’ll be intriguing to see how the exploration and development of the “Dostluk” field progresses in the Central Caspian, now that an accord being Azerbaijan and Turkmenistan has been announced. It won’t be easy to make that project happen, but let’s be a tiny bit hopeful that there’s a new chapter in Caspian energy development still to be written.
