Ukraine Effect: The Energy Transition Takes Center Stage
Plus US offshore wind goes XXL and the power of journalism
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It has been a bit hard to focus on purely ocean-related topics this week when war has broken out in Europe. We’re all left wondering how far this is going to go.
Yet, even a casual follower of recent geopolitical events has come to learn that our global energy interconnectedness is a powerful piece in this game.
I discuss the energy transition quite a bit, and this is where events are colliding with topics relevant to this newsletter.
Putin Initiates the Action, Energy Drives The Response
Europe gets a significant amount of its energy supply from Russia - this has been well established.
This dependency, in turn, has affected everything from the willingness of neighboring countries to get involved in the conflict to the structure of sanctions against Russia’s financial system.
Europe will continue to buy hundreds of millions of dollars worth of resources from Russia each day, keeping coffers full while sanctions tip-toe around other segments of the financial system.
What we’re really learning is that energy security is a promise that fossil fuels alone will never provide.
Of course, when it comes to changing the current energy dynamic, it’s complicated.
A few weeks ago the weekly newsletter was titled The Energy Transition Will Be Messy. So What? and was inspired by a tweet from energy analyst Nikos Tsafos that pointed out that “this is not some shift from order to disorder”.
Right now it’s the status quo that’s on shaky ground. In light of this week’s events, barriers to the energy transition may drop just that much quicker.
The Good Stuff
There has been plenty of analysis (or noise) flying around as to why Europe wasn’t more prepared for this energy contingency.
Here are three articles that I believe address these strategic questions very well:
+Why Europe can’t shut off Russian gas - The Atlantic
+The new energy shock: Putin, Ukraine and the global economy - FT
+Why the West is reluctant to deny Russian banks access to SWIFT - Economist
Or you can just follow Javier Blas, Nikos Tsafos, and John Kemp on Twitter.
Offshore Wind Goes XXL
Back in my corner of the world, the US Bureau of Offshore Energy Management (BOEM) held a large auction yesterday for access to offshore wind blocks.
BOEM is the government agency responsible for managing energy and mineral development of the Outer Continental Shelf.
We have discussed offshore wind’s place in the energy transition as well as the US’s lagging position in this space. However, the development of this industry is not a matter of if, just when.
“By the end of the auction, total high bids on the six blocks amounted to $4.37 billion. That is more than three times the revenue received from all U.S. offshore oil and gas lease auctions over the past five years.”
Perhaps fittingly, the bidding was dominated by joint ventures between large European energy companies (speaking of energy security).
The lack of participation by US companies in this segment of the future energy economy is baffling.
Although there are sure to be some domestic companies in the supply and services required to bring these projects to fruition, the US has yet to build a true offshore wind powerhouse.
+US offshore wind auction draws $4.37 billion in bids - Reuters
For more information about the locations and details of the auction, you can visit the BOEM New York Bight webpage.
Energy, and Geopolitical, Transition
Speaking of offshore wind, the UK is currently the largest offshore wind energy producer and gets 40% of power generation from renewables. They also receive the majority of their natural gas from Norway (see graphic in FT article above).
+Capacity of offshore wind turbines in operation and under construction as of H1 2021, by country - Statista
This energy policy combined to allow them to be quick and nearly alone in calling for Russia to be removed from the critical SWIFT financial system.
Strategic decisions around renewable energy will continue to reshape the geopolitical picture going forward.
+UK Renewables Building spree is impressive
Germany’s energy strategy, conversely, isn’t aging so well.
“After three decades of successive governments tying their country’s energy market to supplies from Russia, Berlin is now urgently reconsidering in a shift that could inflict high costs on its economy.”
+With Nord Stream 2 Freeze, Germany Takes First Step to Cut Russian Gas Reliance - WSJ
Shipping & Ports
Financial institutions can have a strong roll in facilitating, or disrupting, trade.
“Letters of credit from the bank of the buyer are standard practice in commodities trading and guarantee the seller’s bank that payment will be made in full and on time.”
+Banks Shutdown Russian Shipping Credit - gCaptian
And now for some regular programming…
Seafood
Fishrot - IUU fishing and the power of journalism
If you think the energy world is opaque, try wrapping your head around global seafood trade.
I have relied on reporters like Ian Urbina to shed light on the subject of IUU fishing.
The Fishrot case has been unfolding in Namibia over the last few years, ensnaring ten local politicians and an Icelandic fishing company.
Global companies exploiting the fishing resources of distant countries with the help of corrupt local politicians - an age-old tale.
“So just about everyone got a cut of the Fishrot pie. Except for ordinary Namibians.”
This podcast, a roundtable interview with the journalists involved, was referenced in the article below and is a great listen.
“Samherji allegedly also used other dodges to avoid paying taxes in Namibia by registering its operations in tax havens like Mauritius and Cyprus, investigative reporters found.”
If you follow shipping and IUU fishing, this structure is the norm not the exception. I recommend reading Ian Urbina’s fantastic The Outlaw Ocean if you want to learn more.
+Namibia’s Fishrot trial will test the scales of justice - ISSAfrica.org
What does traceability accomplish?
It has been estimated that between 7.7–14.0 million metric tons of unreported fish catches make it to the market each year, representing revenues of anywhere from $8.9 to $17.2 billion.
Traceability technologies and commitments are relatively new and adoption around this fragmented, global industry is patchy.
The study linked below attempts to understand the result of transparency efforts, referencing lessons from similar programs in other extractive industries.
“The evidence for outcomes from these initiatives towards stated sustainability goals in the apparel, extractives, and timber industries was mixed in the literature reviewed, and generally thin.”
Costs of the transparency programs are generally born by producers while benefits are reaped by retailers. The benefits of marketing and premium pricing are captured by the middle-en. Little benefit goes to the small-scale, artisanal producer.
“In seafood and across the cases reviewed, there is a dearth of literature on the effects of supply chain transparency initiatives on sustainability goals (e.g. to combat IUU fishing in the seafood industry) and cost effectiveness of the efforts.”
+Fisheries Transparency Initiative
How does traceability stand a chance?
“A fleet of Chinese vessels which was previously caught fishing illegally in West Africa has been approved for trawling by the Malagasy authorities.”
+Chinese trawlers granted licenses in Madagascar have history of illegal fishing and forged documents - EJFoundation.org
“Mauritius gives fishing permits to foreign trawlers and this is what we get in return. Our reefs are once again damaged”, says Judex Rampaul, a spokesman on behalf of local fishermen.
+Three Taiwanese Fishing Trawlers Run Aground in Mauritius - gCaptain
Forged documents, paper manifests, multiple countries in the corporate structure. Looks like a case for blockchain technology (seriously, if anyone knows of companies working on this I would love to find out more).
It's on my list of research topics.
Tourism - The Great Return?
Many of us have been eye-balling plans for summer vacation somewhere other than our backyards. And then, well, war broke out.
Tourism is a critical industry in many economies. Coastal and marine tourism makes up over 80% of all tourism. The stresses on coastal communities and ecosystems will be back on.
More than likely I’ll be a part of the mayhem.
“Travel and tourism could generate $8.6 trillion globally this year, according to new research by the World Travel & Tourism Council. That's just 6.4% below pre-pandemic levels.”
+Travel and tourism expected to grow to $8.6 trillion in 2022 - CNN
How events in Ukraine will effect people’s willingness to book a trip to Europe remains to be seen. I would get the refundable tickets.
ESG and Finance
The global reaction to the Russian invasion of Ukraine shows the power of tweaks to the financial system. The trillions of dollars flowing into ESG funds shows the power of marketing.
We’ve been up front about the problems with ESG in this newsletter and believe the products need to do a better job living up to the hype.
Our newsletter a couple of weeks ago explored the topic, Understanding ESG. If lawsuits begin to flow, we may find out what it isn’t.
“…a report by climate think-tank InfluenceMap found that 421 out of 593 ESG equity funds it assessed had portfolios that were not aligned with the Paris climate targets.”
+Green investing: the risk of a new mis-selling scandal - FT
Podcast
+How banks and insurance companies can help Nature-based Solutions - Blue Natural Capital
Some Good News
Coal is done because of economics, not policy, or anything related to “green”. The following quote sums it up:
“The plant will now close in 2025 and be replaced by a large-scale battery.”
+Biggest power plant in coal-reliant Australia to close early - BBC
Parting Shot
+Underwater Photographer of the Year winner revealed - BBC
Thanks for reading. Have a great weekend!
Doug