Who will be responsible for stabilizing the energy base? Energy Security Wars (2)

Text | Wang Jin, Zhao Rongmei

The concept of energy security has expanded from a single oil to natural gas and coal, and then to electricity, nuclear power, new energy, and then to lithium, cobalt and other new energy key mineral resources, and then to the energy system and the overall system, coupled with the green and low-carbon promotion in recent years, its connotation and extension have been continuously enriched and broadened (see "Energy Security War (1): Global Crisis Spreads, Security Pressure is Huge"), and countries around the world have included stable energy foundation in the first place of national strategic security.

In the face of the complex international situation, the uneven global development, the energy transition under the "dual carbon" goal, and the sharp fluctuations in the energy industry in recent years, the huge challenge facing China for a long time to come is whether the energy bowl can be firmly held in its own hands, whether there is enough "rice" in the rice bowl, and whether the price of "rice" will be too expensive?

In 2021, there will be a nationwide shortage of coal supply, prices will skyrocket, oil and gas prices will rise, power rationing will occur in many provinces, and heating in the northern region will be extremely tight. In 2022, thermal power companies will still lose money across the board, kerosene and gas prices will remain high, "orderly power supply" will come and go one after another, and the abnormal climate in Sichuan and Chongqing will lead to power shortages for nearly three months, which will have a negative impact on the manufacturing industry chain, economy and people's livelihood in many aspects. In 2023, global kerosene and gas prices will remain at a high level, although they have declined, but due to various factors, the frequency and magnitude of fluctuations are more elusive.

Who is responsible for China's energy security? Or in other words, who is responsible for stabilizing the energy base?

National Energy Security: Three Modes of Thinking

In today's world, energy has long been globalized. A country's energy security is not only limited to one country, that is, the so-called "energy self-sufficiency", but also should be considered in the international market, that is, a country's energy security needs the support of other countries and the support of the international market.

Due to the difference in energy resource endowment, the position of each country in global development determines the different thinking and countermeasures of energy security, and we divide the world into "three worlds": one is the United States, the second is China, and the third is other countries.

The United States and China are both group leaders, each with several groups, and they have their own circle of friends, brothers, friends, cooperation, competition, and hostility. All other countries have to choose groups and choose to follow;

(1) Three sets of thinking

As the leader of the group and the absolute leader, the United States adheres to the "hegemonist" mentality on major issues, especially on the major interests of the United States, and almost unconditionally obeys all countries in the circle of sworn parties, otherwise, the United States will use various means to sanction or punish them.

Most of the support and assistance provided by the United States to countries in the competitive circle are conditional, and they need to be exchanged for resources, economic, military, and political interests.

The United States will use economic, intelligence, diplomatic, divisive, and military means to create obstacles, chaos, or turmoil against institutions or even countries that threaten U.S. interests and security, including energy security, to ensure U.S. long-term interests and security.

In contrast, China pursues the principle of "a community with a shared future for mankind" and cooperates with other countries based on the concept of friendship, peace and win-win results.

Almost all other countries are followers. Russia was originally a "hegemon", but because its economy is too small, its global influence has been greatly reduced. In this Russia-Ukraine conflict, Russia and Ukraine have consumed too much resources and national strength, and it will be difficult for Russia to revive itself in the short term.

Countries choose to follow, although they also talk about origins, systems, cultures, ideas, etc., but the decisive role is still interests, the so-called "milk is a mother". If you follow the United States with great interests, there is a high probability that you will choose to follow the United States; if you follow China's great interests, there is a high probability that you will turn around and choose China; and there are also countries that are left and right and step on two boats. The world is realistic and unforgiving.

(2) Three countermeasures

In terms of energy security, the United States gives priority to ensuring that its own supply is sufficient, and it must control domestic price increases, otherwise, the general price rise and social inflation caused by the sharp rise in energy prices will make voters dissatisfied and lead to the loss of votes.

In the recent conflict between Russia and Ukraine, although EU countries have different opinions and even many complaints, they still choose to obey the United States, and have passed a resolution with a high degree of unanimity to comprehensively sanction Russia, including restricting Russian oil and gas exports. For this reason, the EU is plagued by an energy crisis.

As the "boss", the United States has indeed mobilized its own and global resources, and even pressured Middle Eastern countries to increase oil and gas production and urgently send batches of oil and gas to Europe.

In order to further weaken the strength of the Russian and Chinese fraternal circles, the United States may choose to sacrifice Ukraine and "abandon the pawn to protect the car", so that the conflict between Russia and Ukraine will be prolonged and the poverty will be dragged down by Russia (see "Oil Wars (8): A New Game Has Been Made?").

With regard to countries in the hostile circle, the United States will take the opportunity to use special operations from time to time to destroy the normal ecology of these countries and make the countries in the hostile circle have no time to provoke the global hegemony of the United States.

For example, the 911 incident in the United States, which has been deeply sympathized with and regretted by the world, was in essence a "dog jumping over the wall" under the long-term pressure of US hegemonism, which directly led to the United States "shooting itself in the foot."

Under the principle of win-win cooperation, China has carried out all-round cooperation with other countries in the world, which has been welcomed and recognized by most countries. However, under the guidance of "no trivial matter in foreign affairs," China has "tightened its belt" to support fraternal countries; it has to allocate a part of its energy resources to fraternal countries when it has scarce energy; and it has to forgive the debts of some underdeveloped countries unconditionally and without exchange.

On the one hand, the follower countries threaten the hegemony of the United States and worry about endangering the stability of the regime; on the other hand, they hope to cooperate with China for mutual benefit and win-win results, and interests are always one of the most important considerations, some of which are biased towards immediate interests and some are biased towards long-term interests.

As follower countries, the countries of Europe can only "kneel to the dragon". After the conflict between Russia and Ukraine, the United States has also done its best for the energy security of Europe, its sworn friend. Although the price is on the high side, the US oil and gas merchants have benefited greatly, but the basic supply to Europe has been guaranteed.

In some countries, political inefficiency, depleted foreign exchange, high debt, and crises could be the trigger for the collapse of their regimes without the support of major powers, especially the United States or China.

U.S. Energy Security: The Logic of the "Troika".

Why is the U.S. particularly concerned about energy security?

At one time, the United States was the largest consumer and importer of energy. The fluctuation of the energy market affects the whole body and has a direct impact on economic development and people's livelihood. When any president comes to power, he has to pay a high attention to energy. Do American voters believe that if a president can't even manage energy security, can he still be trusted to do good for the country and its people?

Which of the U.S. federal government agencies are focusing on energy security?

（一）美国能源部（Department of Energy）

What is the logic behind the federal government's creation of the Department of Energy?

Before the 70s of the last century, energy was relatively abundant and cheap, and energy companies fully competed to build a robust energy industry chain system, and the federal government did little and no action.

When the first oil crisis broke out in 1973, global oil prices soared, challenging the energy market and oil security. On the one hand, the first oil crisis accelerated the federal government's restructuring of energy-related government agencies at the national level, including legislative, policy and regulatory agencies, so as to facilitate the overall management of the federal government and ensure national energy security in the event of energy market failure;

The U.S. Department of Energy was established in October 1977 by the Department of Energy Organization Act. The Department of Energy assumes responsibility for all national nuclear energy agencies and nuclear-related defense since the start of the Manhattan Project, while merging energy-related departments from 12 federal ministries.

The primary responsibility of the U.S. Department of Energy is to ensure energy security and energy development through science and technology. As the ruling party and the president change, the energy minister, who is a member of the cabinet, is generally adjusted, and the focus of the energy ministry is also being adjusted.

In the 70s of the last century, the Ministry of Energy focused on the development and regulation of the energy industry; in the 80s, it focused on the development and production of nuclear weapons; with the end of the Cold War, in the 90s, it turned to environmental issues, nuclear weapons management and non-proliferation promotion in the destruction of nuclear weapons; in this century, the Ministry of Energy focused on promoting scientific and technological progress in energy, environment and nuclear energy, ensuring national security and prosperity, and seeking the transformation of the national energy system to maintain the global leadership in clean energy technology and security.

The Department of Energy has a number of departments, three of which are the Office of Infrastructure, the Office of Science and Innovation, and the Office of Nuclear Safety and National Nuclear Safety Management. Among them, the Office of Science and Innovation is home to 17 world-renowned national laboratories, and the recent major breakthrough in nuclear fusion is one of them.

著名的美国能源信息管理局（US Energy Information Administration(EIA)）以及国家战略石油储备办公室（Strategic Petroleum Reserve(SPR)）都是能源部的下属机构。

In 2023, the total budget of the Department of Energy is $48.2 billion, an increase of 15.1% from 2021. Among them, 2.1 billion yuan are infrastructure, 14.7 billion yuan are scientific innovation, 21.4 billion yuan are nuclear safety and management, 7.6 billion yuan are environmental management, and 2.4 billion yuan are other sectors.

In summary, the U.S. Department of Energy not only ensures national energy security and national security in the near future, including promoting nuclear non-proliferation, nuclear weapons security, strategic petroleum reserves, and protecting energy infrastructure from attacks, but also ensures global leadership in energy technology through scientific and technological innovation and application, laying the foundation for future energy security.

（二）联邦能源监管委员会（The Federal Energy Regulatory Commission(FERC)）

FERC is part of the Department of Energy, but it is an independent regulator that regulates the transmission of electricity, gas and oil between states, assesses and determines the cost of oil and gas pipelines, charges and rates for transmission, reviews interstate gas pipeline networks, natural gas storage projects, LNG terminals, etc., and issues licenses for hydropower and other projects.

Through appropriate regulatory and market measures, FERC is committed to helping all energy users obtain reliable, safe, stable and cost-effective energy services at reasonable prices.

China's Energy Security: Responsibility for Debris Management

China's energy industry has evolved from the integration of government and enterprises under the planned economic system. After the separation of government and enterprises, the adjustment of government agencies and functions, the separation and merger of state-owned energy enterprises, and the cautious entry of private capital, China's unique energy system and energy market have been formed. Its basic characteristics are as follows:

(1) In some fields, there is still no distinction between government and enterprises, and enterprises have done the government's business;

(2) There is no distinction between government and supervision, and they are accustomed to formulating their own policies and supervising them by themselves;

(3) There are many departments in government, from the central government to the localities, each in charge of one piece;

(4) Accustomed to emphasizing examination and approval over supervision, breeding many opportunities for corruption;

(5) Some regulatory policies are biased in favor of industry monopolies and vested interests;

(6) The functions of regulatory agencies are scattered, and there are duplications, overlaps, and dislocations;

(7) Regulatory vacuums have been formed in some areas, and consumer rights and interests are not adequately protected;

(8) The industry concentration is high, and a good market mechanism is far from being formed;

(9) The laws and regulations of the energy industry are seriously lagging behind, and the abolition and reform are not timely;

(10) The prevention mechanism for major crises is insufficient, and the emergency measures and means are backward.

As far as national energy security is concerned, under the pluralistic, fragmented, and "Kowloon water control" management model, responsibilities and rights cannot be effectively corresponded, and no one institution can bear the responsibility alone.

Excuse me:

The overall supply of energy is tight, including coal, oil, gas, electricity, etc., which sector should be held responsible?

Regional energy supply is tight, including coal, oil, gas, electricity, etc., which sector should be held responsible?

Which sector should be held responsible for the structural imbalance in energy supply?

Energy prices continue to rise or even skyrocket, which sector should be held responsible?

Which department should be held responsible for the serious damage to energy infrastructure and serious accidents that have caused heavy losses to people and the economy?

Which sector should be responsible for the country's stable energy supply in the future, including coal, oil, natural gas, electricity, new energy, etc.?

In the future, if the dual carbon goals and energy transition are not completed, which department should be held responsible?

Addressing energy security: the need for integrated management

In response to national energy security and related major affairs, it is extremely necessary to integrate and establish a comprehensive energy management department and the corresponding national energy regulatory commission.

(1) The management model of the government energy industry

The government's management of the industry needs to solve the relationship between policy formulation and industry supervision, that is, the relationship between government and supervision, the relationship between centralized supervision and decentralized supervision, the relationship between the central and local governments, and the relationship between the government and the market.

In terms of policy formulation and industry supervision, small countries prefer the integration of government and supervision, while large countries prefer the separation of government and supervision; small industries prefer the integration of government and supervision, while large industries prefer the separation of government and supervision.

In terms of supervision and control, should centralized supervision or decentralized supervision be adopted? Horizontally, there are two main modes of unified supervision and sectional supervision, and vertically, there are two main modes of centralized supervision and hierarchical supervision. Unified supervision and centralized supervision are ideal models.

China is a big country, energy is a basic mega industry, in the national governance, should move towards the "separation of government and supervision, centralized supervision" model, to ensure the mutual constraints between policy formulation and policy implementation, increase the transparency of policy formulation, and improve the efficiency of policy implementation and industry supervision.

To this end, it is necessary to integrate and set up a comprehensive energy management department to formulate a unified policy, and an energy regulatory committee is also needed to implement policies and conduct unified and centralized supervision of the market, so as to ensure the promotion and implementation of the "three publics" (i.e., openness, fairness and justice) unified market.

(2) The main responsibility for national energy security

On the core issue of national energy security, there are three important responsibilities and responsibilities:

First, it is necessary to solve the short-term energy supply security, including the total amount, region, structure, facilities and systems;

Second, it is necessary to prepare for the future energy supply security and ensure the future energy security of the national security;

The third is to maintain the energy market and let the market mechanism really play a role. In the event of market failures, such as sustained or even skyrocketing prices, the government is able to intervene in a timely and effective manner.

The state needs the comprehensive energy management department as a large institution to take the lead, and assume the above three important tasks and responsibilities. The integrated energy management department can assume the first and second responsibilities, and the energy regulatory commission can assume the third responsibility.

(3) Group leaders take responsibility for international demonstrations

At present, China must take the lead in solving its own problems, so that China's energy is safer, its mode is more efficient, its management is more standardized, and its technology is more advanced, so that it can have an exemplary effect on the countries of the fraternal circle and the circle of friendship, and only then can it have more centripetal force for these countries, and only then can its cooperation with the countries of the cooperation circle become more attractive.

Only with a solid energy foundation and strong economic recovery can China give the countries of the fraternal, friendship and cooperation circles greater confidence and more win-win business opportunities, and will also be more able to help the countries of the fraternal circle and the countries of the friendship circle in the event of an energy crisis.

China's peaceful development will also make the United States gradually abandon its vigilance, and in the future, it may have the opportunity to become a rival or partner of the United States in the competitive circle, and can jointly seek global sustainable development.

Energy security, efficient mode, standardized management, advanced technology, and stable market all require the effective operation and support of the responsible entities, namely the comprehensive energy management department and the regulatory committee.

(4) Respond to the low-carbon energy transition in the future

In the future, the global green development and energy transition will accelerate, the proportion of electric energy substitution and renewable energy will grow rapidly, and the energy system will face more severe new challenges such as climate mutation, grid efficiency, and system shocks.

Integrating the existing "Kowloon Water Control" model of energy decentralization and establishing a comprehensive energy management department is not only the inevitable for a new round of energy system reform, but also the leading and responsible institutions for deepening energy system reform and energy transformation in the future. If energy reform is not successful, energy security is not met, and the energy transition is not completed, integrated energy management will have to bear the full responsibility, and the energy regulatory commission will have to bear the responsibility for the inaction of the energy market.

Over the past 40 years, after the merger and reorganization of multiple departments, the rotation of the two parties in power for many times, and the continuous adjustment and optimization of internal management after 16 secretaries of energy, the existing "troika" model of the United States is more effective and widely recognized in the three responsibilities of national energy security.

China is also a big country, referring to the experience and experience of the United States, absorbing its essence, combined with China's national conditions, integrating and setting up a comprehensive energy management department and energy regulatory commission, and promoting a management system of "relatively independent policy supervision, centralized supervision and decentralization, clear division of labor, and clear rights and responsibilities".

The integrated energy management department can be the existing National Development and Reform Commission, or the new Ministry of Energy, so that China's energy security job will have a responsibility for the bottom, deepen the reform will have a driving force, and the international energy game will have a leading body.

(This article is published with the author's permission and represents the author's views only.) The author is grateful for the guidance and advice of some senior experts and leaders in the energy industry. The author is from the Intercontinental Energy Consulting Institute, which focuses on in-depth research, evaluation and consulting in oil, gas, coal, power, renewable energy and climate change. ）