US State Department names main challenges to energy supply diversification

Oil&Gas Materials 13 January 2020 12:58 (UTC +04:00)
US State Department names main challenges to energy supply diversification

BAKU, Azerbaijan, Jan.13

By Leman Zeynalova – Trend:

There are four main challenges to diversification of energy supplies: geopolitics, corruption, monopolies, and magical thinking, Nathan Reich, Energy Diplomacy Officer, Bureau of Energy Resources, US Department of State, told Trend.

He noted that some of these are related, others are distinct.

“In terms of geopolitics, it’s no mystery that some countries view commercial transactions as a tool of foreign policy. If I supply all your energy, I can use your reliance against you. I can tell you that if you don’t do something for me, I will stop exporting energy to you, and thereby bring your economy to a halt, put your citizens lives at risk, and perhaps destabilize your country politically. The aggressor in this scenario views diversification as a direct threat to its geopolitical influence, and consequently seeks to discourage it,” said the energy diplomacy officer.

Reich went on to add that corruption is another challenge to diversification and tends to go hand-in-glove with the geopolitical dimension.

“It can take some persuading to convince a country to place all its energy security eggs in one basket, as you do if you depend entirely on another country to meet your energy demand. One tried and tested approach is to pay off decision makers in the importing country. Self-interest can trump national interest. It’s a terrible pattern. Corruption can stymie efforts to diversify, which perpetuates the country’s vulnerability to a disruption in imports, which leads the vulnerable country to do little or nothing to assert its political and economic independence from the country on which it depends. It can be hard to break that pattern, but we are working closely with our European partners and allies to provide all European countries with options and with the political support to implement them,” he said.

As Reich said, monopolies are likewise a challenge.

“These can be held in place through geopolitics and corruption, but other factors can also play a role. As a matter of course, monopolies seek to maintain their market share, not cede it, and therefore use their market power and price signals, among other tools, to discourage competition. We can disagree about a lot of things, but it seems clear enough that when suppliers compete with one another for market share, prices fall, productivity and quality rise, innovation increases, and substitutes become available. Healthy markets diversify. Consumers and their governments benefit,” said the energy diplomacy officer.

The last challenge he mentioned is magical thinking.

“Politicians can sometimes become attached to projects that, for good reason, will never see the light of day. But that doesn’t stop them from investing years of political capital into such projects and having conferences about how to get them done. Given limited resources and time and the importance of energy security, we need to be realistic. Magical thinking can do more than distract us. It can lead to an allocation of resources away from projects that make sense and thereby delay implementation of projects that would enhance a country’s long-term economic prosperity and national security,” noted Reich.


Follow the author on Twitter: @Lyaman_Zeyn