Energy, Security, and Climate

There appears to be a list of conflicts and other kinds of issues that U.S. President Donald Trump and Russian leader Vladimir Putin touched upon during their meeting in Helsinki, and progress on any of them is bound to be slow. Oil made a headline during Putin’s remarks in the public session: Specifically, Putin reminded the U.S. president in front of the international media that “neither of us is interested in the plummeting of (oil) prices and the consumers will suffer as well” and called out oil as an area for collaboration, as expected. Whether it’s a threat or an offer is always hard to say with the Russian leader. But there are good reasons for U.S. officials to be cautious in the coming weeks and months about looking to Russia for “assistance” in the complicated geopolitics of oil and gas. Like many other conflicts and issues, Putin is promising all sides goods he likely cannot fully deliver. The United States should think longer and harder about what assistance Russia could actually provide to U.S. interests. My view is the bilateral dialogue should stick to more achievable priorities like arms control and improved bilateral lines of communications among top U.S. and Russian military brass to avoid accidental direct clashes. Unilaterally reducing vulnerability to the national security and cyber threats Russia can make against U.S. domestic targets should remain top priority, but oil perhaps belongs on the back burner. The reality is that Russia has made a policy of offering its assistance to national oil sectors under siege, including those who become targeted by U.S. sanctions. That policy has subjected Russian oil companies to all kinds of negative consequences that will hinder their balance sheets and make it more difficult for Russia to play a balancer role in the global oil market down the road. The United States needs to weigh any pledge of oil “cooperation” with America against Russia’s active involvement in troubled oil sectors as diverse as Venezuela and Iran. In the run up to the Helsinki summit, Iran’s senior advisor for international affairs Ali Akbar Velayati met with Putin last week and agreed to $50 billion in oil and gas sector investments. Russian giants Rosneft and Gazprom are in talks with the Iranian oil ministry about upstream investments. Earlier this year, Russia’s Zarubezhneft signed an oil field development deal with the National Iranian Oil Company (NIOC) to refurbish the Aban and West Paydar oil fields. Iran could believe that turning to Moscow will shield its oil and gas sector not only from attack by Arab separatists but also even (perhaps a little more far-fetched, but probably not in the minds of Iranian hardliners) Israel and the United States. The opposite could come to happen. If proxy wars escalate, Russian companies could get caught accidentally in the cross fire. In fact, both Tehran and Moscow alike could lose from deepening their collaborations in Iran’s domestic oil and gas sector. Iran may want to consider what happened to Turkmenistan, whose energy exports were forced into Russia at cheap domestic Russian prices to allow Russian companies to export more of their own gas at higher levels to European buyers. That is one reason many Central Asian countries eventually turned to China for assistance with energy and electricity as the conflict of interest and strings attached were less onerous. For its part, Russia could find that Russian oil workers will be in a vulnerable position to spontaneous local protests and attacks, both inside Iran and Iraq, regardless of the overall tone of high level, government to government interactions. The latest example is Iraq, where angry local protesters lashed out this week at a number of targets but notably gathered to threaten an oil field operated by Russian firm Lukoil. The event, which so far hasn’t resulted in major oil supply cutoff, is a reminder that Iran has the means to punish Moscow on the ground, not only via its proxies on the ground in Syria but also in Iraq, should Moscow cross a redline on any of Tehran’s regional interests.  Iran has threatened that the United States would be mistaken if it thinks Iran would be the “only” country unable to export its oil. Most analysts took that threat to be alluding to Saudi Arabia, which is involved in proxy wars with Iran in multiple locations and whose oil industry has been subject to cyber, drone, and sabotage attacks. But Iran may also want to make sure that Putin knows Iranian proxies can make trouble for Russia (in addition to Saudi Arabia) if Tehran feels double crossed. Moscow could be finding that its “partnership” with Iran is double-edged, constraining its freedom of movement on a host of critical issues ranging from its ongoing operations in Syria to its desire to remain the senior partner in oil market management with Saudi Arabia. From the U.S. point of view, this is highly material to U.S. and Israeli hopes that Russia can be an effective partner. Any Russian promises to help with Syria’s border areas or oil markets could become subject to Iranian backlash and therefore not reliable. In other words, U.S. policy makers could overestimate the value of collaboration with Moscow on Middle East conflict resolution. For Russian oil companies, operations in special assignment regions like Iraq, Venezuela, Libya, and Iran come with extremely difficult operating environments. Local conflicts are disrupting oil production, limiting payments in kind (e.g. oil exports) that were expected to reimburse Russian firms like Lukoil and Rosneft for its massive capital outlays and manpower. Money spent in oil and gas fields in these far-flung places is capital not available to make steady and possibly more reliable profits in Russia’s own domestic oil and gas fields, and it remains to be seen if Russian firms would be able to hold onto the barter style deals, should the governments change in any of the troubled locales. When all is said and done, it remains to be seen whether in the hindsight of history, Vladimir Putin’s deal making in oil over the past year or so will be viewed as triumphantly as it now might appear. In the glare of Europe’s response, the sudden cutoff of Russian natural gas supplies to Ukraine back in 2006 proved a misstep by giving impetus to not only the installation of several major liquefied natural gas receiving terminals in southern Europe and Poland but also giving added stimulus towards a major push towards renewable energy on the continent. Russia’s current moves into troubled states could similarly come back to bite its oil and gas industry, which was already struggling from high indebtedness, limited access to future financing, and the threat of additional U.S. sanctions.

This post is about a new book, “Digital Decarbonization: Promoting Digital Innovations to Advance Clean Energy Systems,” edited by Varun Sivaram. It is available as a paperback or e-book on Amazon, and you can also download a free PDF copy here. Digitalization is all the rage in energy circles. The International Energy Agency published a major report last year proclaiming that the global energy system was on the cusp of a new, digital era. And indeed, advances in artificial intelligence and computing power, the falling cost of digital equipment such as sensors, and the connectivity provided by the Internet are transforming the way energy is produced, transported, and consumed. Many cheer on these trends because of the potential for digital innovations to make energy systems cleaner and more efficient. But digitalization is not inherently clean. That’s a prominent theme in a new CFR book published today, Digital Decarbonization, which features an all-star lineup of thirteen expert authors, ranging from university professors to corporate executives to the energy czar of New York state. The authors highlight the dramatic potential for digital innovations, from self-driving cars to smarter grids, to reduce energy-related greenhouse gas emissions. But they also warn that digital technologies could instead increase emissions by making it easier to obtain and use fossil fuels. Listed below are the diverse topics the book covers (and if you’re looking for Cliffs Notes, my introductory chapter to the book offers a sneak preview into each of the subsequent chapters): PART I: THE DIGITAL WAVE OF CLEAN ENERGY INNOVATION Stephen D. Comello, (Stanford University) “Trends in Early-Stage Financing for Clean Energy Innovation” David G. Victor (University of California, San Diego), “Digitalization: An Equal Opportunity Wave of Energy Innovation” PART II: DIGITAL OPPORTUNITIES IN ELECTRIC POWER, TRANSPORTATION, AND DATA SCIENCE Lidija Sekaric (Siemens), A Survey of Digital Innovations for a Decentralized and Transactive Electric Power System Ben Hertz-Shargel (EnergyHub), How Distribution Energy Markets Could Enable a Lean and Reliable Power System Peter Fox-Penner (Energy Impact Partners), The Implications of Vehicle Electrification and Autonomy for Global Decarbonization Rohit T. Aggarwala (Sidewalk Labs), Autonomous Vehicles and Cities: Expectations, Uncertainties, and Policy Choices Kyle Bradbury (Duke University), How Data Science Can Enable the Evolution of Energy Systems Sunil Garg (Uptake Technologies), Applying Data Science to Promote Renewable Energy PART III: MANAGING THE RISKS OF DIGITAL INNOVATIONS Erfan Ibrahim (Bit Bazaar), Managing the Cybersecurity Risks of an Increasingly Digital Power System Jesse Scott (Eurogas), Managing the Economic and Privacy Risks Arising From Digital Innovations in Energy PART IV: POLICY RECOMMENDATIONS Richard Kauffman and John O’Leary (Office of the Governor of New York), How State-Level Regulatory Reform Can Enable the Digital Grid of the Future Hiang Kwee Ho (Nanyang Technological University, Singapore), Lessons from Singapore’s Approach to Developing Clean and Digital Energy Systems Digital innovations stand out against the landscape of clean energy innovation. Whereas technologies such as advanced nuclear reactors, next-generation batteries, and new projects to capture and store carbon dioxide all struggle to raise private funding, digital technologies in energy are successfully attracting a new wave of venture capital investment in cleantech (figure 1; credit: Stephen Comello). So unlike other technology areas, where policymakers must seek to stimulate investments in innovation, policymakers face a different challenge when it comes to digital innovations. Here, policymakers need to harness these technologies –which the private sector is already funding—to reduce, rather than raise, carbon emissions and mitigate risks such as those of cyberattacks and privacy breaches. To find out more on how exactly to do so, I hope you’ll download a copy of Digital Decarbonization. Digitalization presents a rare opportunity to rapidly transform energy systems that are tend to be frustratingly slow to change. Making sure that the changes we do get advance an ultimate goal of decarbonization couldn’t be more important.