The world economy these days seems bent on serving up one apparent justification after another for regarding international trade with deep suspicion. On top of the US-China tensions, Covid lockdowns, snarled-up shipping and Russia’s full-scale invasion of Ukraine, the latest grist to the reshorers’ mill is the massive global energy shock and the threat of interruptions to cross-border supply.
The disruption has triggered instincts to race towards energy self-sufficiency. One essentially irrelevant idea from Liz Truss, UK prime minister presumptive, involves dealing with Britain’s impending fuel crisis by flogging the ageing horse of the North Sea’s oil and gas deposits to increase output.
It’s natural for governments to be involved in the politicised business of energy supply, given its economic indispensability and the scale of infrastructure needed. What is now called “friendshoring” and applied to goods like electric vehicles has long been at work creating alliances over fossil fuels. Jimmy Carter emphasised human rights during his presidency, but the 1980 Carter Doctrine threatened military force to protect “American interests” — that is, oil — involving unsavoury friendships in the Gulf.
There’s a great deal of path dependence in energy supply. Given the financial and political cost of drilling wells, laying pipelines, creating nuclear power stations, building gas terminals, covering the countryside in wind turbines and so on, governments are reluctant to incur the costs of diversifying against as yet unrealised risks. Over the decades, a solid political consensus can easily grow around a particular model which works well until it suddenly doesn’t.
Germany’s big bet on Russian gas supply dates back to the “Ostpolitik” era of detente with the Soviet Union in the 1970s. Back then the logic of engagement with Moscow, though still debatable, was clear. But it was a massive error to continue relying on Russian gas after the rapprochement between Moscow and western Europe had been reversed by Vladimir Putin in the 2000s, and particularly after his invasion of Crimea in 2014.
Germany’s efforts since March in building liquefied natural gas terminals and looking for other sources of oil and gas have been impressive, as have its efforts to reduce demand, but it has decades of established practice to overthrow to relearn the lessons of the past. As a salient example, Berlin Brandenburg airport, newly opened after decades of delays, depends heavily for its kerosene jet fuel on the nearby Russian-owned Schwedt oil refinery. Authorities have been warningthat a complete German embargo on Russian oil will threaten the airport’s operations. By contrast Berlin’s former airport, Tegel, was more resilient even during the cold war: a diversification rule meant aeroplane fuel arrived by a variety of means including truck and train.
But it’s also vital to note the dangers in attempting to eliminate the risk from unreliable foreign suppliers by trying to do everything at home. Churchill’s often-cited assertion about energy security back in 1913, that “safety and certainty in oil lie in variety [of suppliers] and variety alone”, might equally apply to types of energy and modes of supply as countries.
In France during the decades after the second world war, a policy elite seeded with engineering expertise through the “Corps des Mines” educational cadre developed an energy supply consensus based on large-scale domestically-generated nuclear power, which fitted well with the prevailing economic doctrine of state-directed autonomy. It looked like a good bet, and produced decades of domestic supply and power exports. But over-dependence on a single source is always risky. In recent years under-investment in and mismanagement of nuclear facilities by the utility EDF has reduced output, forcing France to import power from neighbouring countries and leaving its economy vulnerable to the global energy shock.
The reality is that governments have to manage rather than avoid international relationships in energy supply, including electricity generated from renewable domestic resources like wind and solar. It’s long been the case in Europe and the US that making the widespread adoption of solar power affordable depended on imports of equipment from low-cost producers in Asia. The Biden administration has got itself into a horrendous tangle over blocks on imports of solar equipment after US producers complained about unfair competition.
The same is true of other renewables like wind power, particularly offshore wind, where Chinese companies have come in to provide equipment and run generating facilities in Europe. There are, of course, hazards involved in relying on Chinese suppliers and operators, including those with close links with the military. But given the interdependencies involved, the answer is to undertake a realistic assessment of risks and continue to widen the range of energy sources, not to embark on a widespread reshoring campaign.
It’s pretty easy to see that Germany’s political and industrial establishment made historical mistakes in relying on single suppliers like Russia. It’s harder and more expensive to fix the problem by diversifying trading partners, sources and modes of supply rather than continuing to pick individual winners or trying to bring all energy generation home.
alan.beattie@ft.com
Source: Economy - ft.com
