Research Triangle Energy Consortium

Low-cost energy lifts all boats of economic prosperity. Equally, the opposite is also true. Over the years, countries have used energy as weapons of political will. When that has happened, the cost of that unit of energy has risen, thus achieving the intended privation to influence a political position. But not all forms of energy are equally susceptible to this manipulation. Examining just the scalable low-carbon energies of the future for vulnerability to supply chain disruption, the likely rank order in increasing vulnerability is advanced geothermal systems, small modular reactors, innovative storage means (including hydrogen), wind electricity and solar electricity.

Given the magnitude of the impact of the curtailment of energy access, small wonder that energy exporting nations use energy access as weapons of political will. In the last half century there have been two of note. One was the oil embargo portion of the trade sanctions against South Africa in an effort to influence abandonment of the apartheid policy. It was only moderately successful in of itself because of backdoor supplies. But it did cause the first successful commercialization of gas to liquids technology. Eventually, other factors forced the policy changes eliminating apartheid.

A more dramatic one was the Arab Oil Embargo in 1973, in retaliation for a pro-Israeli stance by the US and others in the Yom Kippur War between Israel and Egypt. It lasted only about 6 months in the US (bit more elsewhere) but caused economic havoc and permanently raised the price of oil. This emboldened oil exploration in the North Sea and justified the Canadian oil sands. The latter, in no small measure, contributed to North America now being essentially self-sufficient in oil and gas. The North Sea oil and gas boom made Europe less reliant on the Middle East. In that sense, the embargo acted against the interests of the authors. But the use of oil as a weapon of political will, no matter the outcome, was established.

A smaller saber rattle was in the winter of 2009, when Russia cut off natural gas supplies to Europe to punish Ukraine, through where the pipeline traversed. It was only for 10 days but taught a lesson which certainly was not learnt by the Germans and other Europeans. Shortly thereafter, increased reliance was placed on natural gas from Russia. And now look at the consequences. The Russian invasion of Ukraine, accompanied by the reaction by much of the world to reduce or eliminate imports of energy from Russia, has caused a spike in the cost energy. The wild swings in the cost of natural gas in Europe, as compared to relative stability in the US, are shown in the figure. This has rippled through the economies of the world.

Remedies for Energy Used as a Weapon

One remedy would be to have energy treaties with trusted neighbors, much the same as defense treaties. This would apply to virtually any source of energy, but best suited for oil, gas and electricity. Interdependency helps. Mexico is short of natural gas and has surplus heavy oil, which is well suited for US refineries, and plentiful US shale gas is dispatched in exchange. Canadian heavy oil is mostly sent to the US, where refineries prefer it to the domestic shale oil, in part because it sells for a discount of about USD 20 per barrel today. South Asia does not as yet have anything codified but could, possibly with India as the hub. The trust aspect would probably limit any India focused South Asia grouping to just include Bangladesh, Bhutan, Sikkim, Sri Lanka, Maldives, and possibly Myanmar.

In a de-carbonizing world, the energy of the future is largely carbon-free electricity. A disruption, were it to be attempted, would come in the form of limiting access to key elements of the supply chain, not the commodity itself. Carbon-free electricity is a mixed bag in being susceptible to supply chain disruption. Considering just the US as an example, wind energy is probably fine, with the componentry largely sourced domestically. But as in most manufactured items today, supply is distributed. The largest sources are three European countries combined, and India.

Solar power, on the other hand, sources the vast majority of componentry from China, even though the assembly may be in neighboring countries such as Malaysia, making the import seem to be from those countries. Over 80% of polysilicon used worldwide for manufacture of solar panels is from China. Risk to supply can originate from action at either end. The Chinese factories producing polysilicon are believed to discriminate against a minority. But if the reaction to Russian aggressions is any indication, the US may not initiate anything. In the case of Russia, enriched uranium (uranium with higher concentration of the fissionable U235 in the U238 than found in the mined ore) was discreetly not in the list of import bans from Russia, probably because it was too necessary.  Russia is the largest supplier to the US, at about 30%.

It is still too early to tell where components will get sourced for small modular reactors (SMRs), because none or being made in manufactured quantities yet. But the likelihood for sourcing from friendly countries is high except for the enriched uranium. But the enrichment process is well understood and could be ramped up in most trusted countries. Processing of spent fuel, as already practiced in France, will conserve resources. Furthermore, the breeder reactor versions using thorium in place of uranium would benefit from the fact that a major source would be Australia. India too has significant reserves of thorium.

The winner in the insulation from sanctions sweepstakes is the class of offerings known as advanced geothermal systems. They use conventional equipment from the oil and gas industry, and in fact will pick up personnel and equipment increasingly made redundant with upcoming demand destruction in oil. They, together with SMRs, are ideal for filling the temporal gaps in solar- and wind-based electricity production.

Energy treaties with friendlies*, and choice of energy sources most impervious to external manipulation are the best recourse against the use of energy as a weapon of political will.

Vikram Rao

February 7, 2023

*With a little help from my friends, from With a Little Help from My Friends, the Beatles (1967), written by John Lennon and Paul McCartney