Womble Bond Dickinson’s Houston office hosted a panel event - “Navigating the Complexities of Energy Transition: Balancing Energy Security with Net Zero Goals” – which featured discussions with energy industry executives. One panel focused on how geopolitical challenges are impacting both energy security and the demand that nations pivot to clean energy and renewable resources. This article is taken from that discussion. Opinions expressed here are strictly the personal opinions of the panelists, and do not necessarily reflect the positions of their employers.

Panelists:

• Sudan Maccio – General Counsel, Ecopetrol USA
• Lew Nash – Managing Director, Commodities and Global Markets, Macquarie
• José Luis Vittor – Partner, Womble Bond Dickinson (US) LLP (Moderator)

The global energy supply and the push for carbon neutrality are driven as much by political factors as business needs—perhaps more so. Many nations’ governments recognize the serious threat posed by climate change and the need to curb greenhouse gas emissions to combat climate change.

However, these long-term needs can be at odds with a nation’s need to provide ample energy to its citizens and businesses at an affordable price. Are energy security/stability and green energy development mutually exclusive?

The answer, Maccio said, is “It depends.” Coal, oil, and natural gas aren’t going anywhere in the near future, he said, as they supply most of the world’s energy production.

“You have to look at what ‘energy dependence’ means,” Nash said. He identified four elements of the energy dependence equation – accessibility, availability, acceptability, and affordability. Renewables are growing in three of those four categories, but the acceptability component has been challenging, according to Nash.

“It’s a process of getting there and having a level of general acceptability,” he said. Building awareness of and confidence in renewable energy is an important part of increasing usage of these sources.

Likewise, Maccio said the petroleum industry needs to do more to educate the public on how it can be part of the climate change solution and energy transition. Carbon capture technology and cleaner burning fossil fuels are two examples, and Maccio said the public needs to be made aware of the good things happening in the traditional energy sector.

“In the petroleum industry, we have been terrible at PR,” he said. “We are extremely good at doing complicated things with a lot of risks and capital. But we have been losing the PR battle.”

“In the petroleum industry, we have been terrible at PR. We are extremely good at doing complicated things with a lot of risks and capital. But we have been losing the PR battle.”

SUDAN MACCIO – GENERAL COUNSEL, ECOPETROL USA

European Conflict Brings Energy Uncertainty

Russia’s invasion of Ukraine sent shockwaves throughout the world, in part because Russia is one of the world’s largest natural gas producers. Before the war, Russia supplied 40 percent of Europe’s natural gas, with Germany and Italy being particularly dependent on Russian gas imports.

Following the invasion, NATO countries reduced their orders of Russian fossil fuels in protest. Russia then restricted the flow of natural gas to Europe to create scarcity and, thus, impose political pressure on energy-starved countries to back away from supporting Ukraine. Many observers worry that European consumers may have trouble heating their homes this winter. The gas shortage could also lead to electricity rationing and blackouts in Europe.

“After the events in Ukraine, there has been a lot of concern about long-term energy security,” Vittor said. “This war may linger and bring additional disruption.”

“After the events in Ukraine, there has been a lot of concern about long-term energy security. This war may linger and bring additional disruption.”

JOSÉ LUIS VITTOR – PARTNER, WOMBLE BOND DICKINSON (US) LLP

Moving forward, Maccio said he hopes that Europe will diversify its energy sources and reduce its dependence on Russian natural gas.

The U.S. may not be as directly impacted, but Nash said global issues will continue impact the U.S. market, too. Even beyond the war in Europe, he noted that the world’s need for lithium, cobalt and nickel is going to grow tremendously to fuel the global economy.

“The volatility we’re experiencing right now is not going away any time soon. The fundamental pressures driving these dislocations are likely to persist for some time and maybe get a little worse,” he said.

Vittor noted that the German government has begun taxing what they see as excessive price increases on energy in response to the impending energy crunch. Nash described this as a “thorny policy,” saying “All the issues we are facing are structural and resource issues, most of which can be addressed through targeted investments. Once we start moving large pockets of capital from one sector to another, we risk confusing what we are trying to fix.”

The Inflation Reduction Act and Beyond

In August 2022, the Inflation Reduction Act was signed into law, providing $369 billion in government funding for clean energy development and climate change mediation. The landmark legislation represents the largest green energy investment in U.S. history and provides economic incentives to a wide range of business sectors. These include both clean energy production across a wide array of technologies as well as carbon capture and storage.

“I think it’s hard to deny it’s a bit of a game-changer,” Nash said. “There are vast amounts of capital that are now available. It’s going to take some time to implement this. But is this going to be impactful? Absolutely.”

So, with the Inflation Reduction Act now approved, Vittor asked what federal lawmakers need to do next regarding energy policy. Should there be a second Inflation Reduction Act, for example?

“I hope we don’t need one. Inflation is always the most perverse of taxes. But if there is a second one, I hope they recognize there is a moral case for fossil fuels and we need them to co-exist (with renewables),” Maccio said.

“My opinion – there are three areas of policy that tie in well with the Inflation Reduction Act,” Nash said. “One, probably the most critical near-term issue, is permitting. It’s hard to build. If there’s relief on the permitting side, that takes some friction out of the system. Also, we have an elaborate system of import tariffs. If we could look at some tactical relief on some of these tariffs, that would be helpful. And we have a patchwork around clean fuel standards. For example, if there was a national program for clean fuel standards, it would give a clear price signal and allow investments to move forward.”

“My opinion – there are three areas of policy that tie in well with the Inflation Reduction Act. One, probably the most critical near-term issue, is permitting. It’s hard to build. If there’s relief on the permitting side, that takes some friction out of the system. Also, we have an elaborate system of import tariffs. If we could look at some tactical relief on some of these tariffs, that would be helpful. And we have a patchwork around clean fuel standards. For example, if there was a national program for clean fuel standards, it would give a clear price signal and allow investments to move forward.”

LEW NASH – MANAGING DIRECTOR, COMMODITIES AND GLOBAL MARKETS, MACQUARIE

Nash also said that future legislation may be needed to address critical metals (lithium, nickel and cobalt). Such legislation could both support more efficient extraction as well as promote electronics waste recycling to reclaim these metals.

Moving Forward in an Uncertain Geopolitical Climate

The energy sector truly is global; energy issues in one corner of the globe will impact prices and supplies in another. Womble Bond Dickinson attorney Frank Xue, who attended the session, said many Chinese companies are interested in investing in the U.S., but are concerned about the geopolitical environment.

“Do they need a partner?” Xue asked. “What is the best strategy for these companies.”

Maccio said, “Tell them to come to Houston. We have the talent, we have the legal system, we have a pro-business environment and pro-business regulatory authorities. You’re never a foreigner in Houston—it’s very welcoming.”

While recognizing the huge potential of greenfield projects, Nash said he would suggest that global investors carefully evaluate these because of the aforementioned permitting issues. “An alternative is that there is an existing set of reasonably well-defined brownfield targets—that would be another way to engage,” he said.

The original issue of climate change versus energy security looms over all of these challenges, Vittor said. Will nations be able to meet both of these needs simultaneously?

Maccio said, “Everything is possible, but at what cost? I don’t think they are mutually exclusive, but that is part of the PR battle. You cannot come to a table and say ‘You need to disappear in 15 years.’ I think we (in the petroleum industry) need to state our case so that it is not mutually exclusive.”