On 24th June 2022, the Forum for Global Studies, New Delhi, a multidisciplinary global think tank, hosted a distinguished Lecture Series On “Energy, Environment and Geopolitics” by Dr. Sara Vakhshouri. Dr. Sara Vakhshouri is founder and president of SVB Energy International with two decades of experience working in the energy industry. She is also an alumni of JNU and Jamia Milia Islamia University and a prominent speaker at World Forum. She was joined in this discussion by the FGS team led by Dr Sandeep Tripath, the Founder President of FGS, Col. Manoj Kumar Singh (Retd.) as moderator, Honorary Director of Research, Cássio Eduardo Zen, Honorary Director, Dr. Amna Mirza, Honorary member of advisory research. The session began with the introduction of Dr. Sara Vakhshouri. and a welcome note addressed by Col. Manoj Kumar Singh (Retd.). Col. Manoj Kumar Singh (Retd.) invited Dr. Sara Vakhshouri to share her insightful thoughts on energy, environment, security and geo-politics. Dr. Sara Vakhshouri thanked Col. Manoj Kumar Singh (Retd.) for his kind introduction and Dr Sandeep Tripathi for his invitation.
She said it is an honour for her to be here today and added that India is kind to her heart, and she would like to visit one day. She began by stating that there are so many topics to unwrap when it comes to energy, and energy security, especially during the present times when we are dealing with multiple issues which are also global like global food crisis, global economy and global food security. Particularly in the context of the Russian war, when the world was recovering from the two years of pandemic, it can be said that the whole world is in an energy crisis. The issue is not just the high energy prices but how they are impacting the different branches of the economy, global economic growth, food security, poverty, and access to water, food and electricity, especially, when the whole world is transitioning to net zero emissions. She gave a background view as to how everything that happened during the pandemic has impacted us in the case of energy. Due to quarantine, the demand for energy had shrunk especially global oil which is mainly used for transportation. The market faced a demand shock due to a significant shrink in the demand.
Inventories were filled with oil and liquid. She stated that there were no customers and at some point, in the US we had almost 40 dollars or so for WTI issues at present and the producers were paying forty-one dollars to customers to come and take oil from them which manifests a negative price on the oil. She explained it further by informing us that there’s a difference between the United States oil stock market and Europe. According to her, In the United States, when you are trading WTI, when a contract expires, you have to physically lift that contract and at that point, the inventories are all full and there is no demand for that. We had a huge oversupply in a market and then we had the producer’s cutback their production. There was a voluntary oil production cut as well as organic oil production cut. Voluntary production cuts were done by OPEC plus countries during the pandemic with a plan to increase their production after the pandemic is over. Organic oil production cut was mainly done by the United States, some European countries and Canada when the producers weren’t able to meet their production cost. Oil prices were below the production cost. However, since the vaccination drive, oil production increased significantly. OPEC plus started a program to increase their production which will continue till September 2022.
She gave an overview of the geopolitical implications of energy production and current shifts in the global market. So even before the Russia War started because nowadays, everybody is blaming higher energy prices for it. In the last quarter of 2021, we start seeing the rapid increase of energy prices, natural gas, LNG prices, and oil prices. Natural gas prices in Europe were 10 times more than the prices in the United States. Many fertiliser factories started to reduce their production. So by December of 2021 we could see that somehow food prices might come up due to reduction in production of fertilisers. Then, after the breakdown of the Russia-Ukraine war, production and supply chain were drastically hit. Russia is a major producer and exporter of oil, natural gas, and also liquid petroleum products. Ukraine is a major exporter of food, especially oil and wheat. The world could not put a global embargo on Russian energy exports, because it’s impossible at this point to find a complete substitute for Russian energy supplies. However, some of the countries including the United States and Europe put voluntary self-sanction on importing Russian energy, but this was not easy. I’m sitting in the United States, gasoline prices are historically high. Inflation is high. We have high food prices, why? Because specially in the east coast of us where about 30 percent of unfinished gasoline supply was coming from Russia. So, as we see, the problem in the world is not even just crude oil, because of the lack of investment that happened during the pandemic and was encouraged by political leaders like President Biden.
Investors were encouraged to divest from fossil fuel and invest in renewable energy. Due to this, there is a huge shortage of Supply of crude oil and refinery capacity. In The United States in the past 2 -3 years, especially when everybody was busy with Covid, we had a significant amount of refineries shutting down because of ESG purposes, because companies are so worried about polluting the environment, about producing carbon and penalties. Now, the president of the United States realises that putting pressure on OPEC to produce more crude oil will not solve the issues in the United States because we have Refinery capacity issues. However, the investors are hesitant when it comes to investing as it is a long-term activity and the U.S wants to shift to EV’s by 2030 rather than gasoline or oil. We have European countries that have their own target for reducing their dependency on Russian energy which is obviously redirecting a lot of the US LNG exports to Europe.
Something interesting that happened in terms of oil was the change of flow of the oil export and its geopolitical implications. Historically, most of the OPEC plus and Persian Gulf oil producing countries like Saudi Arabia and Iraq directed their oil exports east of Suez Canal to China, India, and Asia. Russian oil, because of proximity, was going to Europe. Now, this has been changed, most of the Russian oil is going to India and China and Most of the Saudi and Iraqi oil is going to Europe. So, we see that diversion now. Russia is looking at China and potentially India as a market for its natural gas. United States natural gas, because of the long distance, was not economical to be exported to Europe or also Asia. Now, it’s hugely, not only economic but also hugely profitable for the United States. Also, we are expecting us Shale oil production to increase further in the upcoming years. We are looking at one or two years until we have a new energy Supply. Until then, Europe bears the highest pain in terms of energy prices, electricity prices, fuel prices, gas prices, and natural resources. She concluded by stating that the emerging markets and unfortunate people that they cannot afford are going to suffer.
She provided us with an explanation on the question: are we going to move to Net Zero faster or slower? It’s important to have a diverse basket of different sources for their energy security and National Security. So, what we expect is that looking at environmental issues and looking into energy transition. Obviously natural gas is going to keep its share. We think that nuclear power is going to have a bigger share than was expected. Also, many people are looking into hydrogen but what could be its electricity source? We are going to see in the next decade, a huge share for CCS, carbon capture and storage and utilisation, obviously, because many countries would still produce coal oil and natural gas and use them, but they’re going to use CCS Technologies to produce them. Referring to the Russian energy context, she pointed out that due to sanctions, we don’t see any capacity to substitute Russian energy, but definitely, there’s not going to be enough investment and Technology. Many companies have already left Russia. She concluded by saying that if Russia is going to be only dependent on its own technology and investment for its energy industry, its energy production might hit and have hurdles for further development.
Col. Manoj Kumar Singh (Retd.) thanked for her insightful lecture and put forward some questions to her. He stated that geographies really play a big role in transportation of Energy Products, like, natural gas which can really flow very efficiently through the pipeline and involves a humongous amount of investment. So how can you suddenly dismantle the Nord stream, or gas pipelines? What happens to the countries which are all involved in creating that kind of ecosystem? Are they willing to really just leave it aside? Is it not realistic as of now? He also added a remark in the context of Indian energy. India’s needs are humongous. We still need to buy most of our products from the Middle East. We have now imported only 3-5 percent of energy imports from Russia. Buying Russian oil was a sign of gesture of independent foreign policy. He also asked if wheat exports Food energy is if of course, quite played out by politics? As Indian wheat which was supplied to European countries, when landed in Turkey got rejected.
To this she responded that she perfectly agrees with Col. Manoj Kumar Singh (Retd.) on most of the issues, especially political ones. She further elaborated that war has shown where the world is currently going. For instance, most of the Arab GCC countries did not take any strong stance against Russia. She also quoted the Royal Highness, the King of Jordan, who said that “Ukraine war is so far from us it is not in our agenda to comment as far as the Middle East and our Arab countries are concerned.” Also, we did not see Saudi Arabia or OPEC coming and jumping and saying, “Okay, we are going to increase our production to cover for Russian lack of supply.” None of them support that and the story of Russia is different from the story of Iran, Russia is not easily replaceable like the Iranian oil. In the last couple of years, it might seem that for instance, OPEC members, let’s say, Saudi Arabia, when the United States put sanctions on Iran during President Obama and Trump, OPEC could have expanded their oil production but they didn’t. The OPEC secretary also said that Russia exports 7 million barrels per day and we cannot possibly substitute it. It strongly indicates that OPEC is not going to support Russia sanctions. One is going to be isolated from the world and cannot get any investment; they are turning to China like Iran did. Iran signed a 25-year agreement with China that means it takes over every industry in Iran from ports, to mining the energy and environment and infrastructure. The story in Africa is even scarier in these terms. Energy transition, which requires a lot of strategic minerals that are either produced in China or in Latin America, or Africa in countries that are closer to China. China somehow owns or manages or controls those African mines, or they are processed in China from the raw materials of African countries. China is not a big exporter or exporter of oil or gas, but it is exporting 97% of solar panels in the world. The Japanese are telling the United States administration that Russian oil is so close to us, and it’s part of our national security. If things return to normal, Europe would not want to go back in terms of import of oil and gas from Russia and might pay more premium prices to import Saudi oil and Iraqi oil. Even Venezuela and Iran are exporting oil to Europe to meet its energy demands. And this means that if Russia cannot sell oil to Europe, then they have to continue selling discounted oil to India. Before the war, India’s import from Russia was about 40-50,000 barrels per day today is between 500 to 700 thousand barrels per day which is more than 10 times of the earlier imports. Russia is offering a huge discount to India.