Energy-Stick Politics

By David C. Wagman, Managing Editor

Energy’s prominence as a “big stick” in the global political arena comes and goes. Allied forces in World War II attacked supply routes and fought to control oil production as a way to drive the Axis powers to their knees. In the early 1970s, Arab nations showed their displeasure with U.S. Middle East policy by cutting oil shipments. Indications are that the world is entering another period of what some might call “energy-stick politics.”

As good a date as any to mark this resurgence is December 2005. That was when Russia shook European markets and parliaments by shutting off natural gas shipments to the Ukraine over a price dispute. The gas came back on quickly enough, but shock over the Russian action reverberates today. In response, the United States this spring began backing natural gas pipeline proposals that would bypass Russian territory, offering consuming countries the possibility of alternative supply routes. Vice President Dick Cheney visited central Asian countries not only to back construction proposals but to criticize Russian energy policy and democratization. Talk of a Cold War-this time over energy-resumed, raising the specter that pipelines and power plants may replace anti-ballistic missiles and strategic bombers as icons of a 21st century “arms race.”

In the Middle East, Israel, the Palestinians and British Gas tussled over a newly-found natural gas deposit in waters off the Gaza Strip. Total reserves are estimated at around 1.4 trillion cubic feet, a resource that could bring much-needed cash to the Palestinian Authority by 2010, provided some loose ends (always potentially lethal in that part of the world) can be tidied up.

In this hemisphere, Venezuela’s leader Hugo Chavez is inciting nationalist sentiment in South America, championing old-fashioned government takeovers of natural gas and oil production facilities, complete with troops. And Fidel Castro, the last-surviving Cold Warrior, may bridge the gap between 20th and 21st century conflicts if Cuba makes good on its threat to drill in the Straits of Florida, an action which the United States opposes.

In the United States, meanwhile, railroads and utilities are sniping over fair compensation vs. price gouging. The dispute bears a distant family resemblance to the Russia-Ukraine tension and has led to suggestions that range from re-regulating the railroads to encouraging alternative rail providers to start laying track. Some even suggest nationalizing the railroads, a solution that seemingly would borrow directly from Hugo Chavez’s playbook.

Beneath these tensions lies robust global demand for energy. Not just for oil and natural gas, but for coal as well. China, India and countries in Southeast Asia have fast-growing economies and expanding energy appetites. More disquieting is Iran President Mahmoud Ahmadinejad’s chutzpah, not only for continuing his country’s move toward nuclear power but also for shocking diplomatic salons by challenging U.S. assumptions in a May letter to President Bush. One radio commentator at the time wondered how bombastic President Ahmadinejad might become once his country had a nuclear capability.

Given the current turmoil in world energy markets, a seat at the Big Boys’ table may depend less on nuclear weapons than on the size of a country’s oil, gas and coal reserves and its willingness to use those resources strategically. In politics as in energy, not all power is nuclear.

The power industry should view these developments as signaling a need to sharpen its focus on the geopolitics of energy. Plans for new power plants mean that industry leaders need to consider what threats could disrupt fuel supplies not only in the near-term, but also over a generating plant’s decades-long life. Choosing coal because of its abundance in the United States may not insulate a power producer from global market demand. U.S. coal exports could grow if worldwide demand continues to expand, possibly raising prices and potentially reshaping the economics of coal-fired power plants. Coal imports are not out of the question, either, according to some analysts.

Nuclear and renewable energy advocates should view the current geopolitical climate as encouraging. Nuclear power advocates, in particular, should see current conditions as a clear signal that the United States must remove obstacles to building new nuclear power plants. In particular, the disposal issue needs to be solved now. It has been debated long enough.

If energy supply were the only issue-as it was in broad terms in World War II and more pointedly during the Arab oil embargo in the early 1970s-it might be safe to say the world’s current worries will ease given time. But current strong global demand is also a factor complicating the equation considerably.

In May, this column outlined the idea of “wicked problems,” suggesting that many energy problems are less classical “engineering” problems and more a particularly daunting species of problem having few, if any, clear solutions. The challenge for electric power providers is to understand geopolitical nuances then make capital budget decisions that will, with luck, make sense over 30- to 50-year time horizons. The calculus of energy seems destined to grow more complex.

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