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Business Analysis

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Global energy industry feels weight of balance of power shifts

Developing economies have been dictating pace of change in energy transition



Whether it's investment backing for fracking or new oil explorations, West's policymakers are letting go of some of their intense opposition.
Image Credit: Shutterstock

Building on what’s been said earlier about GCC economies capitalising on newer opportunities across sectors, it is important to focus on the energy sector and the changes experienced from the shift in the global balance of power. Such shifts, driven by the tech advances, has opened up manifold opportunities for nations.

For years, developed countries spearheaded the movement to transition away from fossil fuels, announcing substantial support and funding to develop renewable and clean energy sources. Many countries, including oil-producing ones, followed suit.

However, there has recently been a noticeable change in this approach, particularly in the West, where support for renewable energy sources has been scaled back, while criticism of traditional energy has diminished and restrictions on fossil fuel production have been relaxed.

In the US, the Democrats’ Presidential candidate Kamala Harris announced she no longer supports restrictions on hydraulic fracturing for shale oil production, despite the strong opposition within her party, which has significantly limited oil investment, particularly shale oil production.

In Germany, the government reduced subsidies for renewable energy production due to the declining ability of its factories to compete with foreign products, particularly Chinese, in categories such as solar panels, where Germany once held a dominant position. Meanwhile, the European manufacturers of electrolyzers have warned Brussels that they are unable to compete with low-cost Chinese producers.

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These changes are attributed to reasons imposed by strategic and commercial factors related to the control of energy sources, along with the consequent economic and political repercussions.

Historically, developed countries monopolized the world's fossil energy production reservoirs after the First World War and the division of centres of influence among them. As well as the technology for this vital industry, which was desperately needed by these nations, especially to rebuild their economies after the destruction caused by the Second World War. Cheap oil, imported from developing countries, played a crucial role in the post-war reconstruction of European economies.

Since the second decade of the current century, the energy industry has rapidly changed and evolved due to technological advances that have broken the West’s monopoly on energy sources and related technologies. This is a significant shift that has led to the creation of what can be termed a multipolar energy landscape, with influential Eastern countries joining the ranks of Western nations.

Eastern economies drive home certain advantages

The general landscape now appears to be shifting in favour of the East for several reasons, prompting the West to reconsider its strong focus on developing renewable energy sources and adopting a more gradual approach.

The East has several advantages that allow it to compete vigorously. First, China, the GCC countries, India and others have made significant strides in developing clean energy technologies and production methods, diminishing the West's previous dominance in this sector, as was the case with the oil industry.

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This is evident in the significant investments made by Eastern countries, contributing to the development of renewable energy production in many countries, including the developed ones. For example, the UAE has carried out several projects in countries such as Spain and the UK. Saudi Arabia is now carrying out similar projects in numerous countries, especially in Central Asia.

China's efforts in this field, particularly in Africa, are also extensive and continually expanding.

No longer a Western monopoly

In addition, the natural resources critical to the development of renewable energy—such as copper, lithium, aluminium, and polysilicon—are primarily available in developing and emerging countries, which now have greater control over their natural resources, in stark contrast to the past when the West dominated oil and gas reservoirs.

The shift mirrors the liberation of fossil fuel resources, which are now largely under the control of the producing countries themselves.

In short, these changes have shifted the balance of power in the energy sector. Energy production in the East is now less expensive and, therefore, more competitive in international markets. This has prompted some Western countries to implement protective measures that have largely failed to contain Eastern imports due to the shift in the balance of power over time.

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Mohammed Al Asoomi
The writer is a specialist in energy and Gulf economic affairs.
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