The Exchanges

Q And so if and when we do see significant reductions in demand, why would it be that the state-owned suppliers would be the last producers standing long-term? What power do they continue to have under that scenario?

A Well, there's this near term period where oil and gas use are falling slowly, not, not, not falling quickly enough, or maybe not even falling at all, but you see, um, pulled back investment from the large international majors that we talk about all the time, Exxon, Shell, BP, those are the ones under the greatest scrutiny and spotlight. We should remember that when you put them all together, they're only 15% of world oil and gas supply. Most of the world's oil and gas comes from state controlled companies. So if there was a mismatch between supply and demand, um, you're gonna see, I think, less, fewer of those social pressures and fewer of the need for external financing and capital for large state-controlled companies than you do for some of the private companies. So state-controlled companies will be in a better position then. Even in a world that gets on track for net zero by twenty-fifty, net zero doesn't mean zero. Uh, the International Energy Agency, again, did this big landmark report on what net zero looks like by twenty-fifty, and in that world, if we get there, We're using 25% as much oil as today and about half as much natural gas as we are today. That's much less, but it's not zero, so it has to come from somewhere. And I suspect the places it'll come from are the ones that can produce the oil most cheaply and most cleanly. And Gulf, Gulf Arab producers like Saudi A…

AI assessment note: “places it'll come from are the ones that can produce the oil most cheaply”

Q becomes. There's a lot of truth in that, says Jason. But this simplistic framing ignores all the other ways the energy transition will create vulnerabilities and conflicts. Trade wars, disputes over critical minerals, and, as we heard earlier, Price volatility that strengthens petro states in the midterm. So I asked Jason, in a net zero world, where will the risks be lower, and where will they emerge in different ways?

A A clean energy world is, in many respects, going to reduce the geopolitical influence of energy, because it's inherently more local. Um, we know that a clean energy world is going to be a much more electrified one than today. Things like transportation and heat will much of, maybe not all, but much of that will be electrified. And electricity is just more local. Most electricity is produced locally. We don't transport electricity over high voltage transmission lines halfway around the world. It doesn't make any sense. The International Energy Agency, for that reason, projects that total global trade in energy in a net zero world is around just over one third what it would be otherwise. So that's much less global trade, and trade in energy is where a lot of those geopolitical dynamics come from. In a net zero world, the things that are being traded are different, much less oil and gas. Much more hydrogen. Uh, so another kind of fuel, and those fuels can be subject to similar risks of problems in, um, you know, uh, the Strait of Hormuz or somewhere else, uh, conflict of the seas or, or, um, or other, the same kind of risks that we worry about with fuel today might apply to low carbon fuels if they're globally traded. And then the second is critical minerals. And, um, we do see today rapidly growing need for lithium and for cobalt and for rare earth elements, um, A small number of…

AI assessment note: “reduce the geopolitical influence of energy, because it's inherently more local”

Q variable wind and solar, and also to be fed into existing gas infrastructure. A lot of large gas companies are really thinking about The use of hydrogen as a feedstock, and so we're in this world now where we could see incredibly large historic investments in hydrogen. Many, many of those investments could come from existing petrostates, and as you say, could turn them into electrostates. How could that happen?

A We need to get to net zero much more quickly. That's going to involve a lot of electrification, but it's not everything is going, is going to be electrified. It's hard to electrify Steel or cement or heavy industry, maybe parts of heat in a city like New York, you know, massive skyscrapers, how you heat them. Uh, we already have this built infrastructure of pipelines that maybe could be used for lower zero carbon fuel, uh, rather than say for, uh, traditional natural gas, um, and some other forms of transportation. Like if we decarbonize marine shipping, we may well use a fuel like ammonia. So we need, uh, Electricity, and we also need fuels. We need electrons, and we need molecules, and we need to make those molecules low, very low, or zero carbon, and that's where our tools like hydrogen and ammonia come in. You can make hydrogen with zero carbon electricity. Most of that will be renewables. Some of it may be some other sources of zero carbon electricity, uh, and so you, to, to be a leader in the low carbon fuels, uh, industry, you, you need low cost electricity. Zero carbon electricity. And countries in North Africa, uh, some countries in the Middle East, country like Chile, uh, places that have really cheap wind power or really cheap solar power, they, they have the ability, particularly with improvements in technologies that bring down cost of things like electrolyzers to …

AI assessment note: “places that have really cheap wind power or really cheap solar power, they, they have the ability”

Q And how does that translate into other forms of political power? When you, you have the power to control energy supplies, what other forms of power do you wield geopolitically?

A Energy, since, um, since World War I, I think, when Winston Churchill made a consequential decision to shift the British Navy from coal to oil, and then Britain's prospects in the war depended as much on relationships with Persia, where they were getting their oil from as they did with the north of the UK, where they used to get the coal from. Energy has played a central role in foreign policy, national security, geopolitical relationships between countries. It's been the source of cooperation or conflict Uh, sometimes, to be honest, that is overstated. We did, of course, have the Arab oil embargo 50 years ago, but for the most part since then, we have a liquid integrated global commodity market. It's about a hundred million barrels a day. If any one country were to threaten to cut off oil supply or exports to the United States or anyone else, the market would shift around. Price signal prices would go up a little bit. You'd import from somewhere else, and they would sell their, their oil to somewhere else. I think the most significant Dimension of geopolitical influence that comes from energy is not only the amount of production, but the swing supply capacity, the ability to ramp production up or lower it very quickly. The United States and Saudi Arabia produce roughly the same amount of oil every year. I think it's fair to say that Saudi Arabia has more influence in global ge…

AI assessment note: “the most significant Dimension of geopolitical influence that comes from energy is not only”

Q decade and a half have been very willing to slap tariffs on products. We've seen numerous rounds of trade wars over solar panel manufacturing in particular. Are countries, even though the stakes may be a little bit lower, are countries, uh, more willing to, uh, Go after each other in this clean energy economy in order to control local supply of those products. Do you see any differences in behavior?

A There are many differences, I think, that we'll see in a clean energy world with global trade, and in some ways, if you think of forces of globalization, which are already in retreat today, forces of populism, forces of anti-globalization are on the rise. There are some elements of a transition. Maybe the most notable one is that climate change is the ultimate tragedy of the commons problem. If one country reduces emissions and no one else does, it doesn't matter, so we have to work together. That hopefully is an element that is, um, Supportive of increased cooperation and globalization. But there's a flip side, too, which is less trade in energy, so that kind of could undermine the trends toward globalization. But secondly, the sources of conflict that we could see in a clean energy economy. And those are not just if, you know, a threat of an embargo the way you would have for oil or the worry that Russia might turn off the taps to Europe. We could see that from climate policy itself. So you see in the Interest in saying if we're going to impose a carbon price on our energy intensive industries like aluminum or steel or cement, we want to make sure imports are paying that same price and we're not competitively disadvantaged. So they want carbon border adjustments. Well, and the, you know, I was, I hope the United States is doing as much as Europe and we're working together wit…

AI assessment note: “There are many differences, I think, that we'll see in a clean energy world”