Energy Security vs Energy Transition: Turbulence Ahead?

6 min read

In recent years, there has been a laser focus on climate change. However, throughout the world, recent events have pushed energy security to the top of the agenda. To meet short-term needs, some governments have begun to roll back green policies to ensure the stability of their energy supply chains and to limit price shocks, seemingly pushing out the timeframe for transitioning to cleaner fuels.

While some commentators have raised concerns of the much needed energy transition being side-tracked, a deeper look at this multifaceted issue suggests that governments, and indeed companies, need to balance their short-term needs with their long-term targets – focusing on making the right investments to develop the infrastructure for a net-zero future.

This article highlights some of the key points discussed at our recent webinar titled "Energy Security vs Energy Transition: Turbulence Ahead?" featuring panelists Yoshitaka Hidaka (Japan Bank for International Cooperation (JBIC)), Elise Ring (Origin Energy), Valery Tubbax (InterContinental Energy) and Kristian Bradshaw (White & Case), as moderated by Julien Bocobza (White & Case).

Decarbonisation and energy security must occur in lock-step

In April 2022, the International Panel on Climate Change (IPCC) confirmed that the critical target of limiting global warming to 1.5°C by 2050 could only be reached if CO2 emissions were halved by 2030. While in the past, decarbonisation and energy transition was a key focus of institutions, energy market volatilities and geopolitical events over the past two years have exposed vulnerabilities in the world's energy mix, bringing into question energy security, affordability and the resilience of our global energy supply. As energy transition and energy security are key priorities, the question is, are these two goals contradictory or complementary?

Panelist and Head of Export and Infrastructure Future Fuels at Origin Energy, Elise Ring, took the view that both energy transition and energy security are vitally important and that in order to achieve both goals, they must happen in lock-step. Ring went on to note that despite the challenges, "energy transition cannot happen without a secure energy system" as "energy security is very important for our communities and society more broadly". According to Ring, energy security is not just about having uninterrupted access to energy but also about securing energy supplies at an affordable price.

The pathway to achieving decarbonisation and energy security

On the timeline of achieving energy security and energy transition, the panelists were in consensus that the geopolitical situation in Ukraine introduced a greater sense of urgency, and short-term interventions addressing the current energy crisis had to be accompanied by a steadfast focus on mid- and long-term goals of the energy transition. In other words, while industry players may be inclined to depend on fossil fuels to deal with short-term energy shortages, efforts towards the clean energy transition must continue.

According to Valery Tubbax, Chief Financial Officer at InterContinental Energy, green ammonia and green hydrogen presents a unique pathway to resolve the strategic trilemma of (i) achieving decarbonisation, (ii) reinforcing energy supply security and (iii) ensuring price stability. Green ammonia is produced from green hydrogen, made from water electrolysis powered by renewable energy and, unlike fossil fuels, ammonia emits no carbon dioxide when burned.

Energy security has been the focus of the Japanese government for decades, given it imports around 92% of its energy sources, and as such, there were minimal revisions to its energy policy following the global energy market upheaval earlier this year. The country's sixth strategic energy plan, released in October 2021, demonstrates a commitment to steadily decarbonising the power sector, through additional installed capacity of renewable energy sources; continued reliance on LNG as a transitional energy source to stabilise the power grid and prevent supply shortages; restarting nuclear power plants under stringent safety standards; hydrogen/ammonia-fired power generation; and promoting efficient thermal power technology in LNG, coal and oil for the purposes of resilience in stockpiling and ease of storage.

Furthermore, it is clear that nuclear energy will play an important role in the country's transition to clean energy. In August 2022, Prime Minister Fumio Kishida signalled a greater push to restart idle nuclear plants, develop and construct next-generation nuclear power plants. This will alleviate Japan's reliance on energy imports, in particular LNG, amid a global energy crisis and prevent strains on the power grid. White & Case's Local Partner Kristian Bradshaw agreed, noting that nuclear energy is an "obvious solution" for Japan from both an energy security and clean energy point of view, though its use is not without issues – nuclear energy cannot be quickly ramped up and down, which is required in a power mix dominated by renewable energy sources. In this regard, there will be a continued need for gas or coal, which will eventually be replaced with green hydrogen.

Turbulence ahead

The transition to clean energy and achieving secure supply of energy will not be without its challenges. On the role of hydrogen in this transition, panelist and Director for Energy Transformation Strategy of JBIC Yoshitaka Hidaka notes that although hydrogen will contribute to the diversification of energy sources and energy self-sufficiency, a key barrier to the introduction of hydrogen in Japan is the technical and cost issues related to its safe transportation. There have been promising technological developments however, which bring the hydrogen market closer to feasibility. In January 2022, liquid hydrogen was successfully transported from Australia to Japan, and there are similar projects in South Korea and Norway in the pipeline.

Beyond the issues associated with transporting hydrogen, the cost of hydrogen itself is currently higher than the cost of existing resources, and the panelists expect that the cost parity between fossil fuels and hydrogen will only be achieved within the decade. According to Hidaka, this is where governments can play a vital role – by providing subsidies to combat inflation, such as a tax incentive for each kilogram of hydrogen and by sending a strong signal to the industry that it supports new fuels and energy sources. Ring also notes that the commercialisation of hydrogen energy will depend on a many factors, taking into account the inflationary environment and the needs of and costs to consumers, meaning that projects will develop in an iterative manner and larger volumes will only come onto the market in the next decade.

The future of energy

All eyes will be on this year's UN Climate Conference, which takes place in Sharm el-Sheikh against the backdrop of an energy crisis brought on by the conflict in Ukraine and extreme weather events worldwide. The UN Secretary-General has said COP27 must deliver a "down payment" on climate solutions that matches the scale of the problem.
It is clear that the future of energy is at a critical juncture and our panelists are hopeful. The energy transition and supply security are not mutually exclusive endeavours, and these two goals can be brought together in a way that strengthens the resilience of the energy system.

Although turbulent times lie ahead for the future of energy, there is certainly a willingness and enthusiasm for the energy transition and securing energy supply amongst key industry players. Bradshaw is certainly optimistic, noting, "out of crisis comes great opportunity – opportunity to build and reimagine a more resilient global energy system".

Emily Jiang (White & Case, Associate, Tokyo) and Heli Yoon (White & Case, Graduate, Tokyo) contributed to the development of this publication.

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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