Foreign Relations & International Law

Hot Commodities: A Tale of Two Extremes

Ellen Scholl
Thursday, December 3, 2015, 8:59 AM

This year droughts crippled California and heat waves claimed the lives of hundreds in India and Pakistan. Major flooding caught Texas by surprise and Yemen was hit, not once but twice, by deadly cyclones. Coincidence? The UN says maybe not.

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This year droughts crippled California and heat waves claimed the lives of hundreds in India and Pakistan. Major flooding caught Texas by surprise and Yemen was hit, not once but twice, by deadly cyclones. Coincidence? The UN says maybe not.

In a report released at the end of November, the UN declared that weather related disasters have doubled over the last three decades. With eyes focused on world leaders in Paris, the pressure and expectations to reach a universal agreement are high—in part because of the rising perception that we are already experiencing the effects of climate change.

According to the UN, extreme weather disasters linked to climate change accounted for 90 percent of total disasters over the last thirty years. These weather events have taken an enormous economic and human toll, impacting an estimated 4.1 billion people and killing approximately 30,000 people while leaving millions more homeless each year.

The bad news? The worst is yet to come. According to the UN, “predictions of more extreme weather in the future almost certainly means we will witness a continued upward trend in weather-related disasters in the decades ahead.” Time to batten down the hatches.

Still not convinced? El Nino, a weather pattern which fluctuates based on differences between ocean and atmospheric temperatures in the Pacific, is also susceptible to a changing climate. This year’s El Nino—nicknamed Godzilla—is thought to be the worst on record. To date, it has left 11 million children in eastern and southern Africa at risk “from hunger, disease, and lack of water,” according to a UNICEF report. For the more fortunate, El Nino simply might threaten your holiday travel plans.

For those interested in “discovering the mysteries” of El Nino, as National Geographic puts it, check out this video.

While the UN sounds the alarm about the impact of climate change on human life, Congress has a different concern; they warn of potential negative repercussions climate change mitigation efforts might have on life in the U.S. The House passed a resolution Tuesday evening disapproving of the President’s Clean Power Plan, a move Energy and Commerce Chairman Ed Whitfield said is intended to "send a message to the climate conference in Paris that in America, there's serious disagreement with the policies of this president." Message received.

Interestingly, the UN report concludes that the U.S. and China have suffered the majority of extreme weather events this year. In China, public perception of climate change as a serious problem is still below twenty percent according to Pew. In the United States, 45 percent of Americans think climate change is a serious problem while 69 percent are in favor of efforts by the U.S. government to negotiate an international agreement limiting carbon emissions.

Talking Turkey

The war of words—words, for now at least—between Turkey and Russia is also heating up following the events of last month when Turkey shot down a Russian jet in its airspace. In the latest blow, Russia has accused Turkey of downing the plane to protect its own supply of oil, which Moscow alleges comes from the Islamic State. How exactly shooting the place would protect supply, even if Turkey were getting oil from the terrorist organization, remains about as unclear as the intended targets of previous Russian airstrikes.

This fossil fueled anger was on display in Paris on Monday, as Turkish President Erdogan told reporters such claims amounted to slander, promising he would leave his post if proven otherwise. BBC has more on the claims, including a map of the incident.

As Russia levies sanctions and restricts travel to Turkey, many believe this is the final nail in the coffin for Turkish Stream, the pipeline at the heart of the previously blossoming Turkish-Russian energy relationship. However, Keith Johnson argues in Foreign Policy that the pipe dreams aren’t over yet. While relations are rapidly deteriorating, he points out that the two countries are now in a mutual mess characterized by mutual dependence.

Johnson isn’t alone in his observation. John Roberts at Natural Gas Europe notes that Turkey relied on 30 bcm of Russian gas this year, to the tune of $9 billion in Russian coffers. Russia has already sunk $2 billion into the Turkish Stream project, and ending it and restricting supply to Turkey would certainly not help Russia’s already shaky reputation as a supplier.

For Russia, Turkey may be too important a customer to lose. As Europe moves ahead with diversification and Chinese growth remains stagnant, Reuters reports that Saudi Arabia beat out Russia as the top exporter of oil to China in 2015. In a buyer’s market, Russia still needs customers like Turkey to buy what it’s selling.

Thus, as Johnson put it, “the two countries seem condemned to keep working together.” Just take it from the new Turkish Energy Minister—who also happens to be Erdogan’s son-in-law—who declared energy ties would not be threatened. For his part, Erdogan said that even if there is only a string holding the relationship together, this string will not be cut.

However, an early and lone report by Ukraine Today claims that, according to Gazprom sources, Moscow may indeed indefinitely freeze the project. So it remains to be seen just how strong that thread is.

Mr. Gabriel goes to Moscow

Meanwhile, the future of Russian supply and the strings attached to it took center stage at this year’s Central European Energy Conference (CEEC) in Bratislava. Indeed, the main topic of debate at the conference, which took place at the end of November, was not COP, oil prices, or the future of renewables, but Nord Stream II. The attention and anger focused on the contents of a transcript of German Vice Chancellor Sigmar Gabriel’s recent trip to Moscow to discuss the project.

As it turns out, some of Germany’s neighbors feel the project, which would expand the capacity of an existing pipeline route from Russia to Germany—and potentially render gas through Ukraine unnecessary—is not quite in keeping with the Energy Union’s spirit of ‘solidarity and trust.’ Gabriel, for his part, stated that the project is in Germany's commercial interest and should move forward without external—presumably EU—meddling.

What to some sounds like a reasonable business rationale, feels like Germany pursuing its own commercial interests at the expense of its neighbors to others. During his opening remarks at the conference, Slovakian President Andrey Kiska said that referring to Nord Stream II as just another commercial project reinforces the euro-skeptic view that the EU itself is just an economic project. Meanwhile EU Vice President for Energy Union Šefčovič stressed the importance of transit through Ukraine for the EU’s energy security.

President Kiska also warned the project could be a tool of Russian aggression, and a later panelist went so far as to liken Gabriel’s trip to Moscow to the Molotov-Ribbentrop pact, demonstrating that Americans are not the only ones with a penchant for hyperbolic (and in this instance inappropriate) World War II analogies.

However, the conversation begs the question of how to define energy security in the Energy Union, and who gets to decide. It also raises questions regarding what to secure and from which threats. For the members of the so-called Visegrad 4, energy security seems to mean anything but Russia, while other member states focus more on market integration and legal process.

Whoever prevails, those in the ‘anything but Russia’ camp, have something to celebrate this holiday season. U.S. energy company Cheniere will deliver its first LNG shipment in January of 2016. And, as Brigham McCown points out in Forbes, nearly half of the company’s intended customers are European.

Party Like it’s 2009

Gazprom CEO Alexey Miller announced last Tuesday it would cut off gas and coal supplies to Ukraine in retaliation for alleged sabotage of electricity pylons in Crimea. In a twist some might find amusing, Russia accused Ukraine of energy manipulation and terrorist actions and cut off first gas and then coal supplies, while Ukraine restricted its air space and said electricity transmission would not be fixed until Tatar activists allow the repairs.

In the meantime, a state of emergency was declared in Crimea over the weekend as many of the peninsula’s 2 million inhabitants are either without power or relying on backup generators. According to reporting by Politico, sources say Ukrainian officials have slow walked repairs in the hopes of taking advantage of Russia’s preoccupation in Turkey.

While this might raise memories of cut offs of winters past in Europe, many member states have since diversified their gas supplies considerably and are in much stronger positions compared to previous supply disputes. It remains to be seen whether Ukraine, which boasts the largest natural gas storage capacity in Europe, has the reserves and resolve to wait it out.

What to Watch

The Poles

Although it is a member of the Visegrad Four, Poland has a minimal presence at the annual CEEC, as the country’s newly elected Law and Justice party continues the process of government formation. However, that does not mean the new government’s potential energy positions have gone unnoticed.

New Polish President Andrezje Duda has called the expansion of Nord Stream harmful to European unity, and the country has floated the idea of building another LNG terminal in addition to its newly opened Świnoujscie facility. However, many in the EU are watching to see if energy security will trump environmental sustainability, given PM Beata Szydlo’s statement that “‘energy security means preserving coal as an energy source."

Meanwhile, a tanker full of Qatari LNG bound for Świnoujscie is anticipated to make its first delivery on December 11, and Poland is reportedly considering constructing another facility. Bloomberg has more on what energy developments in Poland might mean for the EU, energy security, and relations with Russia, while Politico has more on what Polish requirements for a deal in Paris.

Trade and Investment in Tehran

Amid the debate over what sanctions relief might mean for the Iranian economy--according to The Economist, both positive benefits and disruption—the Iranian government presented a new model for oil development contracts at an industry conference in Tehran in the hopes of luring over $30 billion in new oil contracts and investment to revitalize its energy sector.

Iran has the world’s largest gas reserves and fourth largest oil reserves, but years of sanctions have significantly decreased Iranian production and resulted in an energy sector in dire need of a technology upgrade. As a Chatham House report earlier this year noted, the Iranian energy sector ‘is in critical need of technology, capital and markets if it is to recover.”

The announcement comes amidst low oil prices and declining investment. However, the Houston Chronicle points out that Iran’s fields are low cost to produce, and thus an attractive option for companies withdrawing from more expensive projects in Canada and elsewhere. Increased Iranian production would have implications for OPEC, which is already struggling under the weight of a price war, and will likely add fuel to the already simmering conflict between Saudi Arabia and Iran, currently on opposite sides of two regional conflicts.

And for those of you wondering--Iranian resurgence or not—when OPEC will blink, Foreign Policy asked Christof Rühl, head of research at Abu Dhabi’s sovereign wealth fund.

His answer? They won’t.

Ellen Scholl is a Robert Bosch Fellow currently working in Berlin, where she focuses on energy policy and security. She previously worked on energy issues for the Texas Legislature and the U.S. Congress and completed the U.S. Foreign Service Internship Program during graduate school. Ellen has an M.A. in Global Policy Studies from the LBJ School of Public Affairs and graduated with highest honors from the University of Texas at Austin with a B.A. in Government and Humanities.

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