Global energy markets are at a critical juncture. The past months have seen oil prices plummet due to sluggish demand and surging production. The ongoing situation in Ukraine has put energy security and supply at the top of the agenda of many countries, and renewables continue their steady march towards widespread usage, though uptake remains slower than it could be.
These were just some of the topics that were covered during a lively conversation between EBRD Managing Director Riccardo Puliti and Thane Gustafson, Professor of Government at Georgetown University, at this year’s EBRD Annual Meeting and Business Forum.
Dr Gustafson is a professor of government at Georgetown University and has been a renowned specialist and respected author on global oil and gas for more than three decades. He is the author of Wheel of Fortune, a highly-acclaimed book on the oil and gas industry.
Professor Gustafson began by detailing the historical background of gas producers’ bypassing tactics and how they have shaped today’s energy landscape.
For example, when Russia set up its gas network, it controlled both the gas supply and the transit systems. As soon as the Soviet Union broke up, Ukraine suddenly owned a large part of the transit system, but none of the gas. Friction ensued almost immediately over transit fees and has continued until today. Meanwhile, Russia began investing in new gas pipelines that bypassed Ukraine.
“This has resulted in Russia now having a highly developed and diversified gas system feeding directly into Europe which gives them an enormous competitive advantage,” said Professor Gustafson.
He also described actions taken by Turkmenistan, Azerbaijan, China and, more recently, the USA, that have contributed to the current state of the gas infrastructure landscape.
Professor Gustafson told the audience about a relatively small department within the US Treasury, known as the Office of Foreign Asset Control (OFAC). It is here that sanction programmes are developed and managed against over thirty countries worldwide.
The sanction programme implemented against Russia as a result of their actions in Ukraine has taken a two-pronged approach: targetted sanctions, and energy sanctions. The targeted sanctions against individuals and banks have had a devastating effect on the Russian economy, compounded by the tumbling rouble, he said.
“The energy sanctions, however, have had little impact on Russia, as they are focussed mainly on restricting equipment for offshore and arctic drilling, the gas fields of tomorrow,” he said.
Gas independence is possible in Ukraine, but the key questions remain above the ground, rather than below.
A robust fiscal and regulatory regime, a transparent system for investment, and a less corrupt environment are all essential precursors to an energy idependent Ukraine that, at present, do not exist.
“The tremendous energy inefficiency of Ukraine, both industrially and residentially, will also be a key element in securing the country’s sustainable energy future,” said Professor Gustafson.
The discussion between Mr Puliti and Professor Gustafson was followed by an animated audience Q&A session, which covered topics ranging from the potential of LNG, China-Russia relations and the future of the EU’s sanctions policy towards Russia.