BAKU, Azerbaijan, August 6
By Nargiz Sadikhova - Trend:
Renewable energy in the world and in Azerbaijan will not necessarily have a positive economic impact, Brenda Shaffer, a faculty member of the US Naval Postgraduate School told Trend.
Commenting on the question of how will the development of green energy benefit the Azerbaijani economy Shaffer noted that it is important to separate between the concept of renewable energy and green energy.
"Not all renewable energy is green and vice-versa. Many forms of renewable energy have really high environmental impact, like projects that burn waste and wood. In fact, the most common form of renewable energy--- hydropower—causes a significant negative environmental impact. Hydropower disrupts wildlife, vegetation and water flows and destroys natural ecosystems. Hydropower destroys the natural beauty in areas it is established. Thus, hydropower is completely incompatible with tourism development. Accordingly, Azerbaijan should carefully assess the environmental impact of each renewable project it plans, just like an oil or natural gas project," she said.
Shaffer noted that renewable energy in the world and in Azerbaijan will not necessarily have a positive economic impact.
"It depends on the project and specific costs. Often when governments evaluate the price of electricity produced from renewables, they only calculate the purchase price for the unit of electricity. However, electricity requires the establishment and maintenance of electric grids and maintenance of backup capacity and baseload capacity for when renewable energy is not available (sun, wind, and water levels are variable). Governments usually give renewable energy an indirect subsidy by not obligating the renewable producer to pay for maintenance of the grid or for the backup and baseload capacity of the electric system. So, the real price of electricity produced by renewable energy to a government is higher than usually seems," Shaffer said.
Thus, she noted, whether it is commercially beneficial to use more renewable energy at home and export additional gas, depends on the full price of the renewable energy source, compared to the average profits from the gas export (which vary frequently).
Commenting on the rise in oil prices, Shaffer noted that oil is high for several reasons and likely to climb even higher in the coming weeks and months.
"One of the reasons that oil is high is that the Covid and the post-Covid world have created new demand sources for oil. People fear to return to public transportation, so car sales, including used cars (which are generally less fuel-efficient), are soaring around the world. In addition, the increased use of plastics (disposables, medical equipment, masks, etc. has created increased oil demand (for production of plastics). Demand for plastics was globally on a downward trend before Covid and that has now been reversed. Both trends—increased private vehicle driving and increased plastic use—are likely to continue for a long time after Covid," she said.
Second, Shaffer added, a major reason that the oil price is high is that US production didn’t return despite the price signal.
"This is for several reasons, including Biden Administration limitations that are making it riskier to produce oil and gas in the United States. And, the fact that few ever made money off of the US shale production, so there is little investment appetite to go back to shale in the US. This trend will affect both global oil and natural gas prices because much of the natural gas in the US is associated gas (gas produced while producing oil). So, if less oil is being produced, naturally less gas is produced as a byproduct," she said.
In her words, the oil (and natural gas) prices are likely to continue to soar for a while, but some factors will restrain the trend eventually.
"Sanctions are likely to end on Iran and Venezuela and thus modest amounts of new oil volumes will enter the market. This will not be a flood, since Iran is actually already exporting a lot of oil (with no US response at this stage) and Venezuela’s production is limited by its own oil sector problems," she said.
Also, Shaffer noted, eventually, a global recession will emerge and thus demand for oil and other commodities will decline. The US and many other governments are spending money they don’t have, but at some time the music stops and the dance ends, she added.
Commenting on the current energy policy trends in the USA and Europe she noted that they create a boom opportunity for oil and gas companies outside the US and Europe.
"What is happening in the energy world in the West now? There is no significant global change in demand for oil and gas, while at the same time Western governments and parts of their publics are making it hard for oil and gas companies to operate in the West. So, with demand for their products still in place, companies outside Europe and the US will have a huge opportunity to profit, at least for the next 15-20 years when evidently there still will be ample demand for hydrocarbons," she said.
In addition, she added, some oil and gas companies in the West are selling profitable oil and gas assets in order to lower the emissions the companies produce. Thus, "it is a good time to buy up some of these assets. Many oil and gas companies in the West are buying up renewables, such as wind, at top dollar, and selling good oil and gas assets at low prices."
"What should be Azerbaijan’s strategy in dealing with likely changes in the long-term in demand for oil and gas? The best would be to make a profit as much as possible now and use those profits to invest in developing different industries, not necessarily related to energy. Some people assume that oil and gas companies should transform into renewable energy companies. But, this is not likely to succeed. Oil and gas companies have little comparative advantage in renewables and as utilities. The science of oil and gas is geology and chemistry. While future renewables are likely to develop in the fields of physics, mathematics, etc. There are few success stories of oil and gas companies that became very successful renewable companies. Best to profit from oil and gas as much as possible for next two decades or so, and invest those profits in non-energy related industries," Shaffer said.
Furthermore, switching to another topic, Shaffer also pointed out that reserves are not decreasing, but production in the West is likely to decrease.
"And, this has great geopolitical implications. The global oil market and gas markets around the world became more liquid with more players and thus there was a reduction in politics related to energy trade. If the US does not return to or maintain major oil gas export, this will affect prices and geopolitics around the world," she said.
Also, commenting on the possibility of OPEC+ falling apart in the post-COVID era, Shaffer noted that OPEC plus was established before Covid.
"It was especially a means to facilitate Saudi-Russian cooperation in the oil market. It is not likely to disappear after the Covid crisis fully dissipates," she said.
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