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1. Sanctions and the Economic Consequences of Higher Oil Prices

Author:
Christof Ruhl
Publication Date:
04-2022
Content Type:
Commentary and Analysis
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
Sanctions against the Russian Federation are developing so fast that it is hard to keep track of them and even harder to see a consistent narrative as events unfold. But there is one. Russia is the world’s largest exporter of energy and commodities. A persistent balance of payment surplus is the source of its financial strength, in terms of both current income and the financial assets previously accumulated by “fortress Russia.” Oil, gas, and coal exports constitute the most valuable revenue streams and are therefore prime targets of sanctions policy.[1] The problem is that energy sanctions will backfire badly if they lead to price increases large enough to derail the economic performance of sanctioning countries.
Topic:
Economics, Energy Policy, Oil, Natural Resources, and Sanctions
Political Geography:
Global Focus

2. The Carbon-Neutral LNG Market: Creating a Framework for Real Emissions Reductions

Author:
Erin Blanton and Samer Mosis
Publication Date:
07-2021
Content Type:
Commentary and Analysis
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
As governments and companies consider options to decarbonize their energy systems, addressing greenhouse gas emissions from natural gas and liquified natural gas (LNG) will inevitably become a greater concern. Natural gas is viewed by some as potentially providing a bridge in a broad energy transition from dependence on fossil fuels to lower-emission sources. Even with advancements in renewable energy, many forecasts show natural gas will remain core to meeting global energy demand for some time, including as a backup fuel source for renewables.[1] But as the emissions profile of the natural gas value chain has become clearer, estimates of its footprint have increased, raising questions about natural gas’s transitory function. While gas will continue to have a prominent role in the energy mix,[2] without action to better account for, reduce, and offset natural gas and LNG emissions, the breadth and length of its use will increasingly come into question—including by countries with growing energy demand who see diminishing incentive to favor natural gas over high-emitting but fiscally cheap fuel sources, such as coal. Amid these considerations, discussions of value chain carbon intensity and greenhouse gas (GHG) accounting are becoming an important component of LNG trade, giving rise to the concept of “carbon-neutral LNG.” In the trade of carbon-neutral LNG, GHG emissions from supply and/or consumption are accounted for and offset by procuring and retiring carbon credits generated through GHG abatement projects, such as afforestation, farm/soil management, and methane collection.[3] Currently, carbon-neutral LNG makes up a slim portion of global LNG trade, with just 14 cargoes traded transparently since the first was sold in 2019, compared to over 5,000 cargoes of LNG being delivered globally in 2020 alone.[4] By examining the efficacy of the market at this early stage, as this commentary does, areas for improvement in the carbon-neutral LNG trade are highlighted. Procurement of carbon credits does not negate the emissions from natural gas and LNG, and accordingly, adoption of offsets should be paired with a broader and deeper reduction in the emissions intensity of these fossil fuels to ensure they remain conducive to meeting growing energy demand without needlessly jeopardizing global, national, and corporate efforts to reduce emissions. When considering this alongside the important role LNG and natural gas are likely to continue to play in meeting energy demand in key parts of the world during the transition period, it becomes clear that efforts must be made to scale GHG emissions mitigation throughout the value chain, such as through leakage reduction and employment of less carbon-intensive liquefaction technology, as well as to offset remaining emissions through the procurement and retirement of high-quality carbon credits. Serious questions remain about scaling the carbon-neutral LNG trade, including which emissions are accounted for, what methodology is employed in the emissions measurement and verification, and how the emissions are priced—either through a carbon credit or a carbon tax. If these questions are sufficiently addressed, natural gas and LNG may align better with global policy direction and emissions requirements. That is to say, GHG verification and mitigation will be critical to the sustainability of LNG in the decarbonizing global energy stack in the coming decade, with knock-on impacts on long-term LNG contract structure, trade flows, and market pricing. While this commentary does not prescribe policy to meet carbon neutrality or Paris Agreement goals specifically, it does examine an existing and growing market trade behavior that has the potential to assist countries dependent on natural gas in meeting their climate targets during this transitory period for the global energy system. Section 1 outlines the current state of the carbon-neutral LNG trade, while section 2 suggests a structure for LNG GHG accounting based on existing accounting methodologies. Section 3 discusses the different forms through which emissions mitigation can be integrated into the LNG trade, including a discussion on the risks of greenwashing. Section 4 highlights the implications of the growing carbon-neutral LNG market and provides recommendations to market participants and policy makers.
Topic:
Energy Policy, International Trade and Finance, Natural Resources, Carbon Emissions, and Decarbonization
Political Geography:
Global Focus

3. Oil Intensity: The Curiously Steady Decline of Oil in GDP

Author:
Christof Ruhl and Titus Erker
Publication Date:
09-2021
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
Oil is the largest primary fuel, and the trajectory of oil consumption is of great concern and consequence for economic, political, and, not least, for climate change reasons. Anticipating oil prices and production from year to year is not easy; identifying even basic ingredients of aggregate demand and supply schedules, such as price or income elasticities, is notoriously difficult. It’s an additional challenge to model the structure of a market that sometimes appears to be highly cartelized, and at other times populated by a large flock of peaceful price takers. But a remarkably steady metric—and possible tool for projecting consumption into the future—has been identified in this paper: oil intensity. Oil intensity is the volume of oil consumed per unit of gross domestic product (GDP). Measured simply in barrels per dollar, it is often viewed as a broad measure of oil efficiency; it certainly demonstrates the importance of oil in a society. The efficiency of oil use has improved, in other words oil intensity has declined, over the years and decades. In 1973, for example, when oil intensity was at its zenith, the world used a little less than one barrel of oil to produce $1,000 worth of GDP (2015 prices). By 2019 (the last data set before Covid) global oil intensity was 0.43 barrel per $1,000 of global GDP—a 56% decline. Oil has become a lot less important and humanity has become more efficient in making use of it. What is worth a closer look, and is the focus of this paper reporting on oil and gas related research at Columbia University’s Center on Global Energy Policy, is the pattern by which this progress has been achieved. Since 1984, oil intensity has fallen every year in an almost perfectly linear fashion: the amount of oil used per dollar of global GDP has dropped by roughly the same amount each year. Wars and revolutions, booms and busts, OPEC successes and failures, and every other monumental event in the last 35 years left their imprint on oil markets but didn’t alter oil intensity’s steady, downward crawl. This kind of regularity is very rare in any long-time trend, in economics or in energy. Although oil intensity isn’t a new topic, an attempt to explain its curiously consistent downward progress—or even any discussion about it—is hard to find in the literature. For this paper, the authors explain the trend and cross-validate its predictive potential before delving into possible reasons behind the linear decline in oil intensity. It finally extrapolates what such a continuing trend might mean for oil consumption and policies around it going forward.
Topic:
Economics, Energy Policy, Oil, Natural Resources, and GDP
Political Geography:
Global Focus

4. The Global Energy Crisis: Implications of Record High Natural Gas Prices

Author:
Anne-Sophie Corbeau
Publication Date:
10-2021
Content Type:
Commentary and Analysis
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
The recent spike in energy prices across the globe has led to talks of an energy crisis with far reaching repercussions as the Northern Hemisphere braces for winter. While a significant focus has been on natural gas as gas spot prices in Asia and Europe hit levels unthinkable before ($56/million British thermal unit [mmBtu], or over $320/barrel [bbl] in oil-equivalent terms), the crisis has extended well beyond gas: oil prices are rising, China and Europe are facing record coal prices, and carbon prices in Europe have reached historic levels. As gas-fired plants (or coal in some regions) are at the margin, this is also leading to record power prices in different parts of the world. These circumstances lead to immediate concerns, but also flag important potential lessons for the future. In the short term, immediate concerns include a potential gas supply and power crunch over the coming winter, the impact of record-high gas and electricity prices on end-users’ energy bills, and power shortages. For natural gas, however, the crisis may extend beyond the weather. The role of natural gas in a world looking to slash carbon emissions has been an ongoing topic of discussion, and the potential for a sustained crisis that batters consumers may have critical repercussions for the fuel longer term. Already, at least two schools of thought are emerging from the current situation that reflect the ongoing debate about natural gas: one that views this episode as further proof that the world needs to rapidly get rid of fossil fuels, including natural gas, and one that views it as proof that more gas is needed in the immediate future to satisfy growing global energy demand. Questions of security of supply and affordability are also part of the discussion, especially in a future world with a higher share of renewables but where fossil fuels are still necessary to provide flexibility and are likely to continue to set power prices at the margin until new flexibility tools such as batteries or demand-side management are developed at scale. In addition, there are concerns about another widespread gilets jaunes[1] protest movement triggered by price spikes as governments push their agenda for decarbonization. For the gas industry, it could prove to be a moment of truth. The IEA stated earlier this year that “no new oil and natural gas fields are needed in the net-zero pathway.”[2] Indeed, producers are facing increased scrutiny about future investments, including in upstream activities and liquefied natural gas (LNG), but at the same time are asked to make gas readily available when needed.[3] Meanwhile, developing countries that had been looking favorably at natural gas as a way to complement renewables and decommission coal could be deterred by these high and volatile gas prices from supporting LNG imports. The recent increase in gas prices could impact these decisions in different ways, especially if they remain high for the next few years. This commentary provides a brief overview of the current gas market and examines the potential near- and longer-term impacts for natural gas.
Topic:
Economics, Energy Policy, Natural Resources, Gas, and Energy Crisis
Political Geography:
Global Focus

5. The Impact of ESG on National Oil Companies

Author:
Luisa Palacios
Publication Date:
11-2021
Content Type:
Commentary and Analysis
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
The rise of ESG investing—investment focused on environmental stewardship, social responsibility, and corporate governance—in the 21st century has created significant pressures on oil companies. Some shareholders of international oil companies (IOCs) have pressed them to pay closer attention to ESG goals and diversify their business models away from hydrocarbons and into other sources of energy amid efforts to address greenhouse gas emissions.[1] National oil companies (NOCs)—which currently control about 50 percent of the world’s oil production—have different corporate mandates than their IOC peers that might imply a more complicated relationship with ESG goals. NOCs are mainly owned by governments in the developing world, and thus face vastly different demands than IOCs answering to private sector shareholders.[2] But different does not mean NOCs do not or will not feel pressure to address ESG issues. Given NOCs’ significant share of global oil production—and the fact that this share may increase as IOCs diversify—the pressures they face and changes they make could have a significant impact on the future of the oil and gas industry as well as countries’ abilities to meet climate goals. During the November 2021 COP 26 meetings in Glasgow, Saudi Arabia and India became the latest countries with strong NOCs to pledge to reach net-zero greenhouse gas emissions in the next decades.[3] This commentary examines how the ESG agenda is impacting NOCs through the ecosystem of organizations and principles that have emerged from the UN’s Sustainable Development Goals and the Paris Agreement as well as from investors and regulators in global financial markets. The piece then describes the three components of the ESG framework in relation to NOCs and the challenges of accurately measuring adherence to them due to insufficient standardization of metrics and the variety of reporting frameworks. Also, because environmental, social, and governance competence are not strictly related to one another, companies may be strong in some areas and weak in others, making it difficult to evaluate their ESG performance as a whole.[4] Finally, while ESG pressures are coming alongside discussions about the energy transition and climate change, ESG assessments do not evaluate companies’ energy transition plans, even if some aspects of ESG scores might provide insights about them. The commentary pays special attention to the importance of corporate governance for national oil companies in achieving overall ESG goals, given the key differences between their ownership structure and that of private sector companies working in the oil industry.
Topic:
Climate Change, Energy Policy, Oil, Natural Resources, and Green Technology
Political Geography:
Global Focus

6. Market, Policy, and Political Implications of the Global Natural Gas Crisis: Forum Report

Author:
Hon Xing Wong, Erin Blanton, and Samantha Lang
Publication Date:
11-2021
Content Type:
Policy Brief
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
On October 18, 2021, Columbia University’s Center on Global Energy Policy (CGEP) hosted a special session of the Natural Gas Forum on the global nature of the current unexpected gas crisis, which has sparked chaos in many parts of the world. A number of factors have been put forward to explain the crisis, including a faster-than-expected pandemic recovery in economic demand that has precipitated global supply chain issues, extreme weather conditions around the world, and liquified natural gas (LNG) facility outages. The forum was an opportunity for participants to discuss the underlying causes of the global gas crisis and its long-term market, policy, and political implications. The discussion started with outlooks for the winter across the European Union, Russia, the United States, and East Asia before turning to a debate over any longer-term implications of the natural gas crisis on the energy transition. The forum’s participants included policy makers and senior leaders from major international agencies, energy companies, financial institutions, civil society organizations, academia, and nongovernmental organizations. This summary of the proceeding begins with the broad takeaways of the discussion, which occurred on a non-attribution basis under the Chatham House Rule, and then delves into regional issues and the future of natural gas.
Topic:
Energy Policy, Natural Resources, Global Markets, Gas, Renewable Energy, and Energy Crisis
Political Geography:
Global Focus

7. The Impact of Covid-19 on LNG Supplies

Author:
Erin Blanton
Publication Date:
05-2020
Content Type:
Working Paper
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
The global LNG market, like most commodities markets, has been hit hard by the Covid-19 pandemic. The ensuing demand collapse came after a warm Northern hemisphere winter that left the global market oversupplied, and now prices for spot LNG cargoes are expected to remain low well into 2021. As market watchers search for clues as to how and when demand may recover, the coronavirus could actually bring forward and intensify longer-term tightening of the LNG market by creating conditions that do not favor additional investments in LNG projects. Already, lockdowns have slowed construction on projects in the works and companies are delaying final investment decisions (FIDs) on potential LNG supply projects by several years. The global LNG market could face a supply shortfall in a few years, a scenario that seemed unlikely at the start of 2020 when proposed projects with 186 million tons of capacity were in the pipeline. The ability of the oil and gas industry to recover from the impacts of coronavirus will have a long-term effect on companies’ potential to secure the financing required for multibillion-dollar investments in LNG supply. In addition to the 359 million tons (MT) of existing global LNG supply, there is over 100 MT of supply under construction and expected online by 2025. Some 30 MT of that supply was expected over the next 18 months, but the timing now appears in doubt.[1] These factors will create additional pressure on the LNG industry, which was already facing difficult questions, including how natural gas will fit into global efforts to reduce greenhouse gas emissions and ongoing trade relations between the US and China.
Topic:
Natural Resources, Gas, Pandemic, COVID-19, and LNG
Political Geography:
Global Focus

8. A Near-Term to Net Zero Alternative to the Social Cost of Carbon for Setting Carbon Prices

Author:
Noah Kaufman, Peter Marsters, Alexander R. Barron, Wojciech Krawczyk, and Haewon McJeon
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
The social cost of carbon (SCC) is commonly described and used as the optimal CO2 price. However, the wide range of SCC estimates provides limited practical assistance to policymakers setting specific CO2 prices. Here we describe an alternate near-term to net zero (NT2NZ) approach, estimating CO2 prices needed in the near term for consistency with a net-zero CO2 emissions target. This approach dovetails with the emissions-target-focused approach that frames climate policy discussions around the world, avoids uncertainties in estimates of climate damages and long-term decarbonization costs, offers transparency about sensitivities and enables the consideration of CO2 prices alongside a portfolio of policies. We estimate illustrative NT2NZ CO2 prices for the United States; for a 2050 net-zero CO2 emission target, prices are US$34 to US$64 per metric ton in 2025 and US$77 to US$124 in 2030. These results are most influenced by assumptions about complementary policies and oil prices.
Topic:
Climate Change, Energy Policy, Environment, Natural Resources, and Carbon Emissions
Political Geography:
Global Focus

9. Levelized Cost of Carbon Abatement: An Improved Cost-Assessment Methodology for a Net-Zero Emissions World

Author:
Julio Friedmann
Publication Date:
10-2020
Content Type:
Working Paper
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
New policies are needed to achieve the net-zero emissions required to address climate change. To succeed, these policies must lead directly to swift and profound abatement of greenhouse gas (GHG) emissions. Policies that appear effective on the surface too often have little real impact or are costly compared to alternatives. Governments, investors, and decision makers require better tools focused on understanding the real emissions impacts and costs of policies and other measures in order to design the most effective policies required to create a net-zero world. This paper, from the Carbon Management Research Initiative at Columbia University’s Center on Global Energy Policy, puts forward a levelized cost of carbon abatement, LCCA, an improved methodology for comparing technologies and policies based on the cost of carbon abatement. LCCA measures how much CO2 can be reduced by a specific investment or policy, taking into account relevant factors related to geography and specific asset. It calculates how much an investment or policy costs on the basis of dollars per ton of emissions reduced. Previous marginal or levelized cost methodologies that assess carbon reduction options often failed to consider the specific contexts that determine the real, all-in costs of a policy and the real, all-in impacts on emissions. These costs and impacts can vary depending on the contexts and details of geography, existing infrastructure, timing, and other factors. LCCA attempts to improve understanding of the real climate costs and benefits by including specific and local CO2 reductions in all estimations and consistently applying standard financial metrics that more accurately represent and compare costs. Investors and policy makers interested in climate, energy, and decarbonization must balance many competing options. The scenarios and analyses presented in this report can provide a foundation for wider analytical applications, and can help focus investments in innovation for hard-to-abate sectors, determine essential infrastructure required to facilitate market uptake, and estimate the value of grants in deployment. If the LCCA is not estimated, decision makers will not know the value of their policies and investments in terms of achieving greenhouse gas reductions and their carbon goals or the opportunity costs of taking one path over another. Finally, although carbon abatement costs are only one consideration of many in crafting climate policy (e.g., jobs, trade, domestic security), LCCA analysis will deploy efficient and effective approaches of GHG reduction and help avoid waste. This paper uses four scenarios to illustrate the discipline and value of LCCA analysis: first, the $/ton cost of using new solar power (utility or rooftop) to displace power-sector emissions in one market (California); second, the $/ton costs of new rooftop solar generation in several states with different solar resources, grid mixes, and policy environments; third, the $/ton cost of various technology options to decarbonize a range of primary iron and steel production methods; and fourth, the $/ton cost associated with sustainable aviation fuels and direct air capture and storage of CO2. The analysis provides insight into (a) the highest value for carbon reduction, (b) the relative discrete costs and benefits for decarbonization options, and (c) the potential shortfalls in policy or portfolio goals. In this context, the LCCA estimates for even simple cases can prove complicated depending on how emissions reductions are achieved. For example, our first scenario finds the costs of reducing emissions by replacing existing power generation in California with solar PV range from $60/ton (utility solar PV displacing natural gas power generation) to $300/ton (rooftop solar replacing a grid-average mix of generation) to more than $10,000/ton (any solar replacement of nuclear or hydropower). These large ranges are contingent on policy, investment, and/or technical decisions.
Topic:
Energy Policy, Natural Resources, Green Technology, and Carbon Emissions
Political Geography:
Global Focus

10. Engaging State-Owned Enterprises in Climate Action: Workshop Report

Author:
Philippe Benoit and Alex Clark
Publication Date:
11-2020
Content Type:
Working Paper
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
On February 27, 2020, the Columbia University Center on Global Energy Policy (CGEP) convened a workshop at the university’s Faculty House in New York City. The workshop brought together a combination of practitioners, researchers, executives, and public sector officials to discuss the role of state-owned enterprises (SOEs) in realizing collective climate action goals. Under the Chatham House Rule, the discussion focused around sectors (power generation, oil and gas) and relationships (government-SOE relations, and the role of public financial institutions), before concluding with a roundtable discussion drawing together the day’s proceedings and outlining the next steps. The following is a summary of that workshop.
Topic:
Climate Change, Energy Policy, Natural Resources, and Governance
Political Geography:
Global Focus