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Geopolitics and Energy Transition

"There are emerging countries in Asia, Hispano America or Africa, which cannot and do not want to consider any transition in a period in which, with great difficulty, they manage to get out of the lists of less developed countries. Also, why suffer from energy precariousness just in times of need, if the countries that have led the planet to the current climate problem are precisely those already industrialized? "

In times when Business Intelligence, with its Business and analytic data, and competitive intelligence scrutinize the internal and external markets to optimize and learn to develop better business results, a certain focus is lost, a vital one; the understanding that all these disciplines do not "live" in isolation is neglected. The evolution of the Stock Market or the contraction in the economy, the triumph of one company and the fall of others ... are not only due to binary patterns of supply and demand: Adam Smith's invisible hand is not a hand, it is an ocean and so on Electricity company Brazos in Texas, USA, filed for bankruptcy article 11 due to the Arctic cold wave that hit the region, arguing that the rates reached were "unpredictable."

Ultimately, strategic intelligence and the projection of future scenarios, drink from the understanding of geopolitical dynamics. And although geopolitics may seem like an abstract discipline, it actually binds man to the land on which he develops. There could be nothing more material, or more natural. Starting from a zero-absolute assumption, the set of norms, habits, fears, beliefs, needs and aspirations of an individual, or those of the sum of a people concentrated in a defined geographical space, are different from those of another, even if they are neighbours; sometimes they are antagonistic; sometimes conflicts are generated. There are places where leaders emanate from those geographies, in different ways, and others where people choose governments and leaders that legitimize their aspirations, with better or worse results; sometimes unexpected contingencies occur, or that have been expected for years but not provided for, such as the pandemic. I do not defend any mechanistic determinism, but it is not the same to be born in Hargeisa, Somaliland, than in Madrid. It is a question of difficulties and opportunities; Despite free will, societies advance in different directions, and not everyone starts from the same “zero”. And so, questions arise like, why is the arms budget drastically increased in certain countries with precarious economies? Can Mexico begin to decarbonize its industry? Why does Russia allow an emerging power like China to position itself in the former territories of the Soviet sphere? Why is Istanbul raising the tone of its foreign policy? How does that affect Libya? And to Europe? This is the greatness of geopolitics and strategic analysis, which contemplates the fundamentals linked to man with his environment, and which ultimately form part of that invisible hand, which is manifested.

For the former president of the United States, Donald Trump, whose end of term and anger at the electoral defeat, culminated with the sad images of the assault on the Capitol, frustration should turn to introspection and knowledge. The Terminator-tinged "I'll be back" from Andrew's airbase should be followed, and sure will, by deep reflections. For the moment, the Biden administration is reconsidering all those projects that involve disagreements with the Paris Accords, and that includes the Keystone XL gas pipeline with Canada, or exploration in the Arctic. This is good news, and it should be part of an unstoppable trend. Over the past 10 years, investors, consumers, and regulators have sought to drive a more considerate business approach, based on greater resource efficiency, reduced carbon emissions, gender parity, and building a more global economy. sustainable. Companies and financial institutions are increasingly aware of its impact on environmental, social performance and governance (ESG) responsibilities, and that it can affect them financially and reputationally, or even threaten survival. All of this is geopolitical, and its patterns affect nations heterogeneously.

A few days ago, during an intervention in a forum on geopolitics and strategic intelligence, he contradicted certain authors from another hemisphere who predicted the tremendous chaos that, according to them, would produce the energy transition and the decarbonization of fossil fuels in Europe; well better, in the European Union, which are two different things.

The reality is different, and it is a temporal equation. In Europe, the uncertainty faced by energy companies in the short and medium term due to decarbonization will revert to the block's energy resilience and security in the medium-long term; although it will destabilize other geopolitical balances. For electricity companies it is more evident, but for hydrocarbon companies, they will need to establish a perfect synchronization, to abandon traditional sources of income, while embracing new technologies. Fossil energy companies have deep competitive advantages, such as an enormous investment capacity (CAPEX), or the knowledge and precise relationships, to operate in multiple countries. Building offshore wind farms in Scotland is not the same as building land plants in Congo or Sudan. If you are able to operate in seconds, you will possibly be better able to evolve.

The transition from current energy sources to renewable energy uses the vector of electricity, which has the virtue of not polluting, and the drawback of not being able to be stored efficiently yet. While green hydrogen or derivative technologies and electricity storage technologies advance, together with CO2 Capture and Conservation, Spain is presented as a privileged actor, together with a European Union, which is advancing with determination along this same path. But as anticipated, not all regions of our planet are moving in the same direction. Some nations cannot afford it; some are too busy dodging survival problems; and others simply know that this transition process will still take years in some markets, and are focused on exploiting what in many cases is their only source of national income: oil and gas. 

There are emerging countries in Asia, Hispanic America or Africa, which cannot and do not want to consider any transition in a period in which, with great difficulty, they manage to get out of the lists of less developed countries. Furthermore, why suffer from energy precariousness just in times of need, if the countries that have led the planet to the current climate problem are precisely those already industrialized? In any case, if the countries that base their prosperity on hydrocarbons - or their survival, see their demand gradually decrease, how will fuel prices be affected? For the West, opening the tap and letting natural gas flow is normal; For countries where there is no or poor electrification or urban energy distribution infrastructure, why are they going to look for renewable energies that use hydrogen or electricity? It is difficult to comment in these countries on energy transition; It was tough in 2008 in the face of the economic crisis, and it is tough now in the face of falling demand and GDP.

In other cases, we have some countries in the Middle East, for example, that have understood where the world is going, and their state model allows them to choose to invest great fortunes in redirecting themselves towards these new energies; Here, hydrocarbon producing countries take advantage of their resources to strengthen and diversify their economies in their territories, or investing in other states to strategically position themselves and project interests.

Although he previously commented that Washington plans to reverse the exploration of hydrocarbons in the Arctic, precisely the recent Arctic cold, were the culprits of the controversies that arose in Texas a few days ago, before a cold wave that surprised everyone; also to the wind turbines, which froze without having heat equipment and which, together with the voluntary disconnection of the Texan system from the Federal network - the result of mistrust towards the national system - and the freezing of pipelines and terminals, impeded supply domestic normal, and gas exports to Mexico, which was also left in the dark "already cold." Mexico also took advantage of the situation to "heat up" the political debate, and its president took the opportunity to emphasize his lack of interest in decarbonisation, preferring to choose to strengthen state energy companies against competition from the private sector, as part of something they hope that be a push toward self-reliance. Of course, for Lopez Obrador, the exacerbated protectionism of his state governments is giving him few results, being increasingly indebted; and it will create conflict with the US and Canada.

Asia is also developing large energy transition projects with Japan, South Korea and others, betting decisively on hydrogen. China is watching all this carefully and also promises to reach the peak of its emissions in 2030, then falling until 2060, when it hopes to achieve neutrality. China, with great health problems in the air of its cities, represents 20% of global annual emissions, and must gradually get rid of its powerful coal industry, while the US should gradually move away from its hydrocarbons; The pace and speed at which this transition is made will depend on the regulatory environment and the investment and financial pressure; and it will have impacts that translate into competition.

China has a model and a long-term Grand Strategy (FIDE US-China trade war) and does not want to dominate the world; however it is perceived as a threat by the US. To confront it, former President Donald Trump opted for the trade war, something that had already been tried in the days of Clinton and Obama, but that did not prosper before a North American business community that was disturbed. With Trump, it prospered, and it caused the few Chinese elites who still did not believe in President Xi Jinping's model to embrace him without hesitation, putting a sense of patriotism first. At the same time, the Trump administration was abandoning the Trans-Pacific Partnership, a grand agreement that would have been the alternative to the new China Silk Road (BRI, Belt and Road Initiative). The TPP was a proposed agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States, but from which Trump withdrew in January 2017, not entering into force as such. In what situation did this leave the United States? It anchored it to a protectionism that, although it defended its own industry, failed to propose an alternative to the traditional allies.

Thus, currently, of the 195 countries in the world, 120 have already joined China's vision of its BRI, 18 of them are in the European Union. None of these countries share China's political model, nor is China so foolish as to attempt to expand it; But few countries disdain such an injection of capital, precipitating Beijing's potential for influence. And although we will see the United States, less expressive in the economic war, one that will continue with the current president Joe Biden, although this time more settled on the pillars of traditional foreign policy, with more assertiveness in the demands related to human rights and within the framework of what it considers an unfair trade. The global theater of a globalized world involves numerous main actors, and obtaining adequate support, while maintaining the necessary legitimacy, is crucial; especially in the midst of a true energy transition.

In sum, the geopolitical reality shows how, for different reasons, there are different speeds in the decarbonization process, in which the European Union is firmly committed; that this will cause global imbalances; that more and more countries, and also some Europeans, embrace the Chinese BRI project, one that, although it does not seek to expand a political model, will geometrically scale the Chinese soft-power, its soft power; that there is a kind of entente cordiale between Beijing and Moscow, one that common sense encourages, while geopolitics challenges it (I will explain this situation in Central Asia on another occasion). All these dynamics open the door to risks and challenges; also to opportunities. There are hundreds of young analysts who aspire to do their bit to answer these questions, and to anticipate these changes within corporations and states. Geopolitics studies and negotiates all this, and the more we understand "how states think" and why things happen, the better we will understand where they are going, and how it will affect us.

For my part, I leave these reflections here. Our wonderful philosopher Ortega y Gasset used to say (someone asked me a few months ago, if they were two brothers…), that the «desire to know and the desire not to err are two essential impetus to man». The desire to know, I must confess that it represents a great challenge for me, because it forces me to face every day, everything that I still have to learn; I do not see enough time in my years of existence to reach a minimum of knowledge. That is why I praise and admire formators, and I am incapable of forming; How could I do it if I don't have enough time to learn ... As for the desire not to err, well, that characteristic, after so many years traveling and living in so many countries, I have more tamed ...

Jose Parejo

Geopolitics and Strategy.

March 02 2021.

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