How Putin’s War Is Fast Changing Our Energy Future

Vladimir Putin’s ugly war of annihilation in Ukraine has probably ended globalization as we know it, along with our culture’s ignorance of the reality of depleting finite resources. Officially, things have gotten so bad that the Paris-based International Energy Agency is now recommending that citizens drive slowly, work at home, share cars and avoid business travel to conserve some 2.7 million barrels of oil.

The IEA pulled the same plan out of its back pocket during the 2008 financial crisis. Their technocrats now assume that at some point electrification will diminish our dependence on fossil fuels and save economies from damaging volatility and other inconvenient events.

Meanwhile political vultures such as the petrostate of Alberta want to take advantage of the chaos by pressing for more pipelines and oil exports even though the province’s own government could not have balanced its budget without the war in Ukraine.

The empty rhetoric from IEA and the likes of Alberta, however, does not offer real solutions. Putin’s war has merely worsened a structural crisis that our political leaders collectively deny. Cheap fossil fuels built the global economy, burnished its hi-tech political order, energized its complexity and drove all financial flows.

But that era ended with the advent of fracked gas, deep ocean oil and carbon-rich bitumen. These forms of extreme energy come with hefty ecological price tags and require high energy prices — something that the global economy cannot sustain.

For the last decade consumers have struggled to afford the goods and services provided by oil already priced too high for current wages, but whose price volatility has diminished extraction.

As the Tyee warned readers in 2018, energy price volatility signals the great unravelling of global complexity built by decades of careless energy spending.

So get ready to spend a much greater share of your income on energy. Prepare for shortages. Expect rampant inflation. Assume chronic supply chain interruptions.

And get ready for the energy fallout: high degrees of political conflict and instability. When people can’t afford drive to work or heat their home, don’t expect rational politics to emerge as a solution. (About 20 per cent of Canadians now spend 10 per cent of their income on energy.)

According to U.S. social critic Nate Hagens, the invasion of Ukraine has accelerated a multifaceted global emergency. That crisis includes biological extinctions, climate upheaval, a population crisis and a technological war on truth. He argues that the “war in Ukraine has shortened the runway leading to the Great Simplification.”

By simplification he means radical decreases in energy consumption necessary to prevent the collapse of biological life systems on the planet. That means the end of globalization, and the relocalizing of economies with a priority on local food security.

If the pandemic closed the door on the illusion of material and energy normalcy, Putin’s war has forever bolted it. And when the world’s largest wheat exporter invades the world’s fifth largest wheat exporter, expect famine to visit parts of the globe.

There will be no quick fix to this mess nor any reliable energy transition, other than radical conservation and de-growth. That path, of course, risks high unemployment and business failures. It will trigger severe civil unrest in the absence of Volodymyr Zelenskyy-like leadership to relocalize our economies.

Here then are a few energy realities to ponder as the world changes faster than our ability to imagine a different future. We are all now caught in a furious energy gyre. The only certainty is that tomorrow will not look like today, as an energy-ignorant civilization spins in the gyre’s churning currents.

Europe remains heavily dependent on Russian fossil fuels

Although the European Union promises to wean the continent off its deep dependence on Russian fossil fuels by 40 per cent by 2030, this unshackling will not happen quickly or easily.

When British and Dutch hydrocarbon fields started to deplete two decades ago, Europe became reliant on more energy imports. As the world’s largest natural gas importer, it secures 40 per cent of its supply from Russia. When Germany retired its nuclear power plants in 2011 — a grievous energy mistake — that economic powerhouse became more dependent on Russian methane. As a consequence European and particularly German energy consumers are now maddeningly funding Putin’s regime and its war against Ukraine. (Germany’s oil purchases alone pour $275 million a day into Russian coffers.)

The energy ecologist Vaclav Smil asks a good question. Given that it took nearly a decade for Europe to reduce fossil fuels from 76 per cent to 70 per cent as a share of its primary energy consumption, “what are the chances that during the next eight years it will cut the share from 70 per cent to about 42 per cent?”

In recent weeks methane shipments to Europe from Russia have surged by 37 per cent.

Putin knows that he can demolish every city in Ukraine with barbaric shelling long before Europe can address its Russian energy dependence.

Petrostates are dysfunctional states prone to starting wars

Oil has guaranteed Russia’s political dysfunction and funded Putin’s imperial ambitions. More than 30 per cent of Russia’s GDP and more than 40 per cent of its budget depend on the export of fossil fuels. Oil revenue supported a hollow economy ruled by kleptocracy, but rebuilt Russia’s army.

Petrostates that receive at least 10 per cent of their revenue from oil behave two times more aggressively than governments without oil.

When led by revolutionary leaders such as Putin (who wants to make Russia great again) the level of aggression goes higher — or 3.5 times greater than non-oil exporters. Moreover petrostates, as political scientist Michael Ross has written, “are 50 per cent more likely to be ruled by autocrats — and twice as likely to descend into civil war — than countries without oil.”

Oil cements power, fuels belligerence, kindles fantasies of greatness and feeds political hubris of every stripe. The petrostate of Iraq invaded Iran and Kuwait. The petrostate of Saudi Arabia invaded Yemen. The petrostate of Nigeria invaded the former state of Biafra. The petrostate of Libya invaded Chad. And the petrostate the United States invaded Iraq and Afghanistan. Long before Ukraine, the petrostate of Russia invaded Chechnya, Georgia and Crimea. The extreme political posturing of oil producers in North America such as Texas and Alberta also reflect oil’s belligerent dynamic on a smaller scale.

The brilliant political scientist Terry Lynn Karl has long warned that petrostates simply don’t behave like normal states. Oil not only hinders democracy but improves the longevity of rulers and political parties dependent on its revenue. Putin’s Russia underscores this truth.

The war in Ukraine, which could last years, will create wild fluctuations in oil prices that will transfer enormous wealth to petrostates. This wealth transfer will destabilize petrostates and oil importers alike with the result that we may see persistent and chronic warfare in our lifetimes. Markets will not be able to solve disruptions in oil supply caused by conflict started by petrostates.

Oil shocks create economic recessions

Putin’s war, which disrupts all global oil production by unsettling one tenth of the world’s fossil fuel supplies in Russia, has created the world’s fourth oil shock. In Europe, for example, gas spot prices have climbed more than 10 times higher than a year ago while the cost of oil has nearly doubled.

The world has experienced such energy mayhem before. The Yom Kippur War in 1973, the Iran-Iraq war in 1980 and China’s rapid industrialization between 2003 and 2005. These events created shocks that doubled or tripled oil prices. These wild price fluctuations resulted in economic contractions because globalization cannot function on expensive oil. When citizens spend more than 10 per cent of their incomes on gasoline, transport and heating, economies begin to falter.

The next domino is a fertilizer crisis

Every time natural gas prices go up, food prices join the ascent. Making fertilizer is an energy intensive process. Nitrogen production in particular requires a feedstock of methane to make two key fertilizers — ammonia and urea. One hundred years ago the world depended on nitrogen-fixing bacteria and manure to fertilize crops; now it depends on natural gas and the Haber-Bosch process.

Half of the world’s crops depend on these fossil fuel-based nitrogen inputs. Without synthetic fertilizers made from natural gas — another globalized business — the world could not support 8 billion people. As the U.S-based Fertilizer Institute admits, “natural gas prices and availability impact the final nutrient production costs.” Farmers are now facing cost increases for ammonia over 210 per cent, liquid nitrogen over 159 per cent, urea up by 155 per cent. Translation: higher food prices.

This industrial system doesn’t work well when natural gas prices go sky high due to supply chain problems, weather shocks, windless wind farms and poor energy decisions. Before the Ukraine war fertilizer prices in Europe increased four-fold resulting in the shutting of ammonia plants. As a general rule, curbing nitrogen application by 15 per cent results in a five per cent lower grain yield. Due to its natural gas supply, Russian dominates global nitrogen exports.

U.S. geopolitical analyst Peter Zeihan adds that “we’re already at levels of fertilizer prices that will prevent a lot of farmers in a lot of parts of the world from using them, which means we’re going to have shockingly lower yields this harvest season on top of the wheat shortage. One of my big concerns in the long run has always been that when globalization breaks, it takes a whole wider culture with it and that costs us lives. That starts now.

The global ties threatened by Putin’s war already have reduced local energy security

The rapid growth of the U.S. liquefied natural gas industry tells a sobering story. In recent years the U.S. became a major exporter of LNG in an effort to secure a better price for cheap shale gas. For nearly a decade U.S. companies fracked shale gas at huge economic losses. But a combination of factors including tight supply from Russia, rising Chinese demand (due to its ban on Australian coal) and lower than expected wind production offshore in Europe drove LNG prices sky high.

As a result U.S. and Canadian gas consumers saw their gas heating bills rise by 30 per cent before the war in Ukraine. Even bullish LNG analysts concede that trading LNG made some economic sense when it was cheap and priced at $4 per million British thermal units. But a price of $30 dollars per mmBtu exacerbates all problems and solves none. Australia experienced the same dynamic of outrageous domestic prices when it started to export LNG to Asia in vast quantities with no energy security plan. It is likely that the United States will soon question its drain-American-energy-first policy.

The green transition already faced daunting challenges

Rising energy prices affect all commodities and will make a problematic green transition even more difficult due to physical material shortages.

Take electric vehicles for example. The world’s status quo has embraced the electrification of transportation vehicles as a major solution to climate change.

But material and economic realities challenge this dogma. Electric cars depend on the mining of copper, aluminum, chromium, lithium, lead and other minerals. Oil powers the mining of these minerals while mining accounts for 10 per cent of the global greenhouse gas emissions. On average an electric vehicle requires 183 pounds of copper. As both oil and copper become more expensive to mine, the price of electric vehicles will climb. (An added conundrum: China mines and uses half of the world’s copper.)

The making of internal combustion engines depended on a complicated global supply chain of oil, which is now broken. Electric vehicles, another symbol of globalization, equally depend on highly volatile supply chains for dozens of metals. As globalization reverses, these supply chains will become more uncertain. In addition Rystad Energy warns that “global demand for high-grade nickel, an essential component in electric vehicle batteries, will outweigh supply by 2024.”

In a recent presentation Roger Baker noted that “EVs require so much fossil fuel to mine their minerals that they only catch up with conventional cars as being greener at the end of their lifetime” — and only if they run on low carbon electrical sources.

So welcome to the renewable paradox: low oil prices discourage investments in solar and wind while high prices make the manufacture of renewables more expensive and discourage investment.

The political groundwork has not been done to prepare the public for lower consumption

Despite tightening energy supplies and volatile prices for all commodities, the globe’s political class still assumes that an energy transition using enormous volumes of materials will address climate change and grow the economy.

The Spanish energy critic Antonio Turiel thinks this unsustainable and impossible model needs to be replaced with some clear-headed thinking. Take for example Catalonia in the 19th century, where textile mills and other industries used the hydraulic force of local rivers to provide the energy for the mills. What if different regions were to employ this kind of local energy thinking with 20th-century knowledge, Turiel asks.

“Taking advantage of the sun directly to heat, melt, transform. Taking advantage of the mechanical force of water and wind to move, work, forge. Taking advantage of plants, cultivated and wild, herbaceous and trees, to obtain reagents and materials. Also producing some electricity for when it was needed, but without becoming obsessed with just producing electricity. Also producing some hydrogen for when it was needed, but without becoming obsessed with maintaining a huge fleet of trucks and heavy machinery with it.

"Being more efficient. Achieving a better balance with nature, reducing our environmental impact, adapting to the rhythms of the planet, depending just enough on materials that come from afar, with facilities on a more human scale and easier to repair and maintain, creating local wealth and employment, fully decarbonizing our activity.”

Climate change invited the world to de-globalize decades ago. But we rejected that invitation as frivolous.

Then the pandemic extended another inconvenient invitation to shrink our global footprint. In response, many of us now pretend the pandemic is over.

Will it take the destruction of Ukraine and a Third World War to change our course?