February 2021: ISSUE 126 THE GEOPOLITICS OF ENERGY: OUT WITH THE OLD, IN WITH THE NEW? Introduction .................................................................................................................................................................... 2 Uncertain past, uncertain future: how assumptions about the past shape energy transition expectations ................................. 7 Indra Overland Global energy governance: meeting the challenge of the energy transition ........................................................................... 9 Kirsten Westphal China’s emergence as a powerful player in the old and new geopolitics of energy ............................................................... 12 Michal Meidan China’s Belt and Road Initiative: changing investment priorities in pursuit of energy security and carbon neutrality ................ 15 Dongmei Chen Clean tech innovation in China and its impact on the geopolitics of the energy transition ...................................................... 18 Barbara A. Finamore Improving grid interconnection to support climate change mitigation................................................................................... 22 Zhanghua Zheng The global battery arms race: Lithium-Ion battery gigafactories and their supply chain ......................................................... 26 Simon Moores The next prize: geopolitical stakes in the clean hydrogen race ........................................................................................... 30 Thijs Van de Graaf The Geopolitics of nuclear energy in the era of energy transition ....................................................................................... 34 Jane Nakano The energy transition and the enduring role of energy in US foreign policy ......................................................................... 36 Meghan L. O’Sullivan Lessons from a strategy of energy dominance ................................................................................................................. 39 Sarah Ladislaw Winners and losers in an uneven energy transition ........................................................................................................... 41 Paul Kolbe and Mark Finley Is this Russia’s Kodak moment? ..................................................................................................................................... 45 Indra Overland The geopolitical implications of global decarbonization for MENA producing countries ......................................................... 48 Pier Paolo Raimondi and Simone Tagliapietra The Middle East and the geopolitics of the energy transition: myths and realities ................................................................. 51 Ahmed Mehdi The ‘Big Three‘ oil producers and their strategies: will the old conundrum return when the current crisis recedes? ................. 55 Vitaly Yermakov Energy and sovereignty in the new Geopolitics of the eastern Mediterranean ..................................................................... 58 Zenonas Tziarras THE GEOPOLITICS OF ENERGY: OUT WITH THE OLD, IN WITH THE NEW? February 2021: ISSUE 126 INTRODUCTION Gathering momentum for the energy transition—supported by ambitious net-zero roadmaps by governments (EU, China, and US) and multinational corporations—has sparked debate on what the energy map will look like in 30 years. For more than half a century now, access to oil and natural gas has been at the heart of the geopolitics of energy; but with renewable technologies set to dominate energy supply systems, relations between states will change, while economies and societies will undergo structural transformations. This issue of the Oxford Energy Forum discusses the drivers and main features of the ‘old’ and ‘new’ geopolitics of energy. It assesses the power shifts that are unfolding, the winners and losers—both countries and technologies—that are likely to emerge from this process, and the potential implications for global governance regimes. Our authors ask whether the prospects of peak oil demand will dim the geopolitical forces shaping producer–consumer relations and upend geopolitical arrangements which have been defining elements of regional power systems. They discuss the future of natural gas in the energy transition, and whether producers are adapting their strategies. They ask: who will lead the race for new technologies and supply chains? And how will US–China competition and coordination impact global efforts to meet the Paris climate goals? A thread running through this Forum is a warning against intellectual complacency. One key theme is that assumptions about the future geopolitical outlook of countries, regions, and trade relationships will hardly be guided by history, given the size and scope of the transformation. Demand-side policy and capital allocation shifts will create both challenges and opportunities for fossil fuel incumbents—a stark reminder that while some regions are moving more slowly, no region is standing still as the energy transition gathers pace. Similarly, identifying winners and losers is not as clear-cut as it seems, especially in light of concerns that the US is losing out in the race with the EU and China. The third theme serves as a stark reminder that the pathways to net zero will be neither linear nor uniform, especially in light of the falling costs of technologies. But the race for technological leadership and for control of the supply chains of new materials will become a key factor in the geopolitics of new energies. Framing the energy transition and its geopolitical implications In the opening article, Indra Overland highlights the analytical challenges when predicting the consequences of the energy transition based on our assumptions about the past. He presents six areas where interpretations of past and current issues are decisive for thinking about the winners and losers of the energy transition. First, do oil and gas lead to geopolitical competition? Second, does the US contribute to stability in the Middle East? Does Russia use energy as a weapon? Next, is natural resource endowment a curse? Do developed countries exploit developing countries and their natural resources? And finally, do trade and interdependence promote peace? Given the diverging views on how these factors shape the ‘old’ geopolitics, there are considerable uncertainties about their consequences for ‘new’ geopolitical arrangements, complicating scenario-building and prediction studies. Overland argues that more attention needs to be paid to how interpretations of the past and the present shape our predictions of the future, both regarding the geopolitics of the energy transition and beyond. As such, our analytical frameworks are a potential barrier to thinking about the future of the energy transition. Similarly, Kirsten Westphal questions the suitability of the existing energy governance structure in dealing with the challenges of the energy transition. The challenges of governing or steering the energy transition from the top down led to the emergence of a new governance model, which provides states with the flexibility to manage their own transitions from the bottom up. Under the overarching climate regime, a sequence of recurring reporting, monitoring, and increasing ambitions has been designed. Yet this governance model depends on national and regional energy policy measures, such as emissions trading schemes, and on countries committing to an ambitious common goal, even though individual paths toward it differ markedly across the globe. As a result, one of the challenges will be developing policies and governance fit for an increasingly heterogenous, fragmented, and regional energy world. What is more, future pathways are highly unpredictable since the energy transition is also part of an industrial revolution. Westphal notes that the new energy system will be more electrified, digitized, demand-side driven, and distributed, leading to a relocation of production and demand which will be guided less by geology than by political choice. In this regard, two decisive trends need be watched closely. First, will regionalization result in competitive regional governance that fuels rivalry and fragmentation, or will regional governance provide stepping stones for global governance? Second, will the energy transition result in competitive and functioning new markets, or will states increasingly control key technologies and value chains? OXFORD ENERGY FORUM 2 February 2021: ISSUE 126 China’s role in the energy transition and the race for technological dominance In this context, China has emerged as a dominant player in the energy transition. Given its heavy reliance on imported oil and gas, and growing concerns about energy security in light of escalating tensions with the US, a shift away from fossil fuels is a clear geopolitical win for China. That said, China’s reliance on oil and gas is unlikely to fall dramatically over the next decade, despite President Xi Jinping’s announcement in September 2020 that the country will peak its carbon emissions by 2030 and aim to reach carbon neutrality by 2060. While there are debates about whether China’s centrality in oil markets will weaken in five or ten years, as its electrification programme could limit its need for oil sooner than expected, its importance for gas markets will only grow over the next two decades. Michal Meidan argues that even though China will not be immune to geopolitical