As the Russian invasion of Ukraine continues, it is becoming clear that a lot more is at stake than just the future of Ukraine. Big shifts in global order are set to follow because Russian bad behavior is triggering a reorganization of global energy supplies. 

Russia is the second most important exporter of oil to the global market, after Saudi Arabia.  It is the largest single supplier of gas to Europe.  Before the war, this dependence put Russia in a special position—able to earn massive export earnings while protecting the nation from much retaliation.  All that is now changing.  

The key to the new order will be Europe.  With breathtaking speed and unity, the Western nations have sanctioned Russia and branded the country a pariah.  Lots of countries have played a role, of course.  But Europe has been central because it is the most dependent on Russian energy supplies and also holds most of the keys for cutting that dependence.  

So far, the sanctions regime has covered practically everything but energy.  It has largely closed Russian access to western banking and airspace; the sanctions isolate members of Putin’s regime and family and seize Russian assets and financial reserves.  But oil  and gas have kept flowing, for now, because there’s no practical alternative.  Shutting those supplies quickly would cause massive economic harm and probably splinter the western alliance as individual nations seek their own special deals.  The politics of dependence are ugly—something the West has known since the first energy crises of the 1970s.

What’s special about Europe is the massive effort, unfolding right now, to make permanent cuts in dependence on Russian supplies.  The result will be an energy system in Europe that is much less dependent on fossil fuels—and thus a lot cleaner.  And for Russia the outcome will be permanent economic harm that will take a generation or longer to recover, if ever.  

Over the short term the European plan is to find any energy supply that will burn and doesn’t come from Russia.  That means a bit more coal along with more oil from the rest of the global market.  Saudi Arabia and the rest of OPEC have been visibly unhelpful—refusing to deviate from production plans set before the war.  Winners in this effort to find new supplies include Libya and Iran—two countries on the fringe of global oil markets but invited back, quickly, because they are less abhorrent than Russia.  None of this is politically elegant and none of it will do much to cut emissions, for now, but all of it will isolate Russia.  

Replacing Russian gas will be harder.  For now, Europe, which buys about 40% of its gas from Russia, will source as much as it can from other suppliers—such as by tanker from the United States.  That tanker gas is expensive because it must be cooled and compressed to make the gas a liquid—a process that, itself, uses a lot of energy.  Worse, Europe must pay prices high enough to attract that liquefied gas that, otherwise, would go to markets in Japan, Korea, China and the rest of Asia.  For these reasons, the price of natural gas in Europe today is about five times the level it should be this time of year.  With costlier gas has come costlier electricity and a drag on the European economy.  

Over the short term, the next year or two, Europe will do what it must do.  But over the longer term the European response is what’s most important.  Big investments in efficiency along with alternatives to oil and gas—such as electric vehicles and hydrogen—will put Europe on a trajectory of much lower consumption of fossil fuels and emissions.  

The European investment to cut dependence on Russian oil and gas matters not just for Europe but the rest of the world.  That’s because big European investments in new technology will drive down costs, and those lower cost devices will be available to the rest of the world.  This logic is exactly how solar energy, today often the cheapest form of generating electricity, got competitive.  It started in niche markets — first the U.S. and Japan, then in Germany — and from there global manufacturing (centered in China) drove down costs further.  As the new technologies got cheaper their backers also got more powerful politically, which cemented the revolution.  One of the leading approaches to cutting dependence on natural gas—shifting to hydrogen—is poised to have its solar moment.  

A lot can go wrong of course.  Elections in France and the US could put demagogues in power that will make it harder for the west to stay unified.  China and India will inevitably erode, a bit, the impacts of western sanctions by purchasing Russian energy supplies, especially oil, on the global market.  

But what’s most surprising, so far, is how much has gone right.  After decades of a foreign policy marked by disagreement and incoherence, The crisis in Ukraine has unified Europe.  And the place where that unity is perhaps most apparent is energy policy.

L'articolo Europe’s energy agenda after the Ukraine War proviene da InsideOver.

The European Union seems intent on accelerating the times of the energy transition, but politics continues to step on the brake. The latest chapter concerns the taxonomy for sustainable finance, which decides which investments can be part of the ‘great European plan’ for a clean and sustainable environment. This fundamental step is currently still waiting for the go-ahead in anticipation of a new government taking office in Germany following the elections, the first in many years without Angela Merkel as favourite for the role of chancellor.

The taxonomy will have to indicate whether two forms of energy production that are important, in fact crucial today, namely gas and nuclear power, can be included among those in which investments can be made as part of the green deal. Having said this, it is clear that the importance of the taxonomy cannot be reduced to a choice between concentrating investments on renewable energy or also keeping them in hydrocarbons, because it involves the same EU energy system. And, in passing, about 800,000 workers in Italy alone are employed in the so-called ‘hard to abate’ sectors, meaning heavy industry and transport, where green solutions are still unable to meet energy needs.

Theoretically, the clash is between two concepts that are for the moment (only apparently) irreconcilable. On the one hand, there are those who believe that radical choices need to be made to complete the energy transition. On the other, there are those who identify natural gas – and nuclear power – as indispensable as supports for the inevitably gradual transition during the period when renewable energy cannot, on its own, guarantee all our energy needs.

The gift of green radicalism

The first approach is dominant at the moment in the debate not only in Italy but also other European countries, including Germany where the environmental theme was at the centre of its elections on 26 September. The programme of the Grüne, led by Annalena Baerbock, on climate issues was presented with slogans that could also prove fascinating to the Mittelstand, the numerous small and medium-sized German businesses. The policy of the ecological party has encountered an obstacle in one of the policies that is least acceptable to business, a carbon tax that already plans to raise the cost of emitting CO2 2023 to 60 euros per ton as from 2023. In future, actions for environmental sustainability could well run aground in the face of the economic costs necessary to put them into practice. The story is further complicated because the Green Party is seeking to introduce drastic reductions on greenhouse gases and rejecting the doubling of Nord Stream 2, a bone of geopolitical contention between Biden and Putin (and Merkel).

So the issue of the taxonomy for sustainable finance is a crucial issue. Unless resolved in a broadly agreed way, it will cause problems within the EU. One above all. If gas were to be excluded from investments considered virtuous (together with nuclear power and agriculture), it would undermine the process of replacing coal-fired power plants. And in Germany and all the East European countries, as well as Italy, coal is the main cause of pollution and the greenhouse effect.

The risks for Italy

This, finally, again raises the issue of the ‘hard to abate’ sectors, such as steel mills, power stations, cement factories, paper mills, steel and chemical plants. These are important sectors not only for Italy but the whole of Europe. In Italy they are the backbone of the fabric of small and medium-sized businesses, the flagship of Italian industry worldwide (think of the production chains in automaking, aerospace, pharmaceuticals, etc.).

If it is true that energy efficiency means using less energy to perform the same work, with the advantage of reducing greenhouse gases and the demand for energy imports, it is clear that we need viable solutions, not speeches. Some solutions are carbon capture and hydrogen: highly topical issues, as Joe Biden’s special envoy on climate, John Kerry, and his Chinese counterpart Xie Zhenhua agreed at a meeting in Shanghai in mid-April.

We need a sustainable and pragmatic energy transition based on an upstream energy-efficiency production cycle and on solutions that reduce downstream emissions. And at the same time we need to retrain workers for new skills. This was precisely one of the topics at the centre of the Offshore Mediterranean Conference, the global Mediterranean energy event hosted in Ravenna.

L'articolo Gas and renewables: the energy mix of the future? proviene da InsideOver.

A recent discovery of significant natural gas reserves within the Turkish Exclusive Economic Zone (EEZ) in the Black Sea was the main topic of Turkish President Recep Erdogan’s speech on August 21.

During a televised press conference from the Presidential Complex in Ankara, the Turkish President announced that the drilling vessel Fatih had discovered the largest-to-date energy reserve in Turkish territory. This statement comes at a crucial moment for the Turkish economy and the security and energy landscape in the region.

Erdogan Announces the ‘Good News’

On Wednesday August 19, Erdogan delivered a promising speech in the opening ceremony of the Kalyon Solar Technologies newest giga-facility in Ankara. Erdogan mentioned that he was to announce some very good news by Friday, regarding a development which would bring about a new era for Turkey.

Shortly after his statement, speculations around the context of the upcoming good news have been circulating; a Bloomberg report confirmed by Wednesday evening that the “good news” was related to a significant discovery by a Turkey in an energy field in the Black Sea.

The pre-announcement has partially eased the pressure on the Turkish lira, which momentarily gained more than 2% against US dollar; however the actual statement two days later, has reversed the gains, indicating that the estimations around the energy reserves which Erdogan made public during his Friday speech did not meet the expectations.

The natural gas reserves in Black Sea’s Tuna-1 zone could reportedly be approximately 11.3 trillion cubic feet (tcf), or 320 billion cubic meters (bcm). According to Erdogan, this could be just a part of the total reserves in this energy field and could eventually be the catalyst to turn Turkey to a net gas exporter and a substantial energy hub in the wider region.

A Morale Boost for the Struggling Turkish Economy and a Very Optimistic Prediction

The Turkish President has tried to over-emphasize the discovery and imply that this would be game-changer for the Turkish economy, at a moment that both the short-term and macro-economic indicators seems rather grim for Ankara. Erdogan has also stressed the role of his son-in-law and current Minister of Finance and Treasury of Turkey Berat Albayrak. Before his appointment in the Ministry of Finance, Albayrak has served as the Minister of Energy and Natural Resources from 2015 to 2018, and has taken critical steps regarding the exploitation of the recent discovery and the nationalization of the country’s energy industry.

Erdogan has also tried to present a rather too optimistic time-plan for the exploitation of the resources, since he stated that by 2023 the reserves could be fully exploited and natural gas would be available to the domestic and international markets. The fact is that 2023 is a year of particular significance for the Turkish President since it coincides with the centenary of the Republic of Turkey.

Erdogan’s 2023 vision is a personal political bet, as the Turkish President would like to make a direct comparison with the founder of the Turkish Republic Kemal Ataturk and prove that his neo-Ottoman strategy has been much more beneficial for the Turkish people than the Kemalist legacy.

According to experts of the energy industry, gas reserves normally take four to seven years from the time of discovery until the phase of final extraction, and in the case of the latest Turkish discovery, analysts said that this time-frame could be even longer, up to 10 years. We can easily see that the claims of the Turkish President are over-optimistic and primarily aimed at serving his current political agenda.

Comparing Tuna-1 with other Natural Gas Reserves in the Region

In order to gain a clearer idea of the recent discovery it’s worth taking a quick look into other significant discoveries of energy reserves in the region over the past few years. To achieve a better understanding of the sizes we will also refer to the current population of each country, so we can set some very basic parameters for a more accurate comparison.

It’s important to mention once again here that the current estimations regarding Tuna-1 suggest that the reserve holds approximately 11.3 trillion cubic feet of natural gas. However it has not been clarified yet whether this the recoverable or the overall amount of the field. Turkey has a population of approximately 83 million.

Back in 2010, Israel discovered the massive Leviathan reserve. Leviathan is the largest gas reserve in Israel and holds approximately 22 trillion cubic feet of recoverable natural gas. Leviathan delivered gas to the domestic market not earlier than 2019. Israel is a country of approximately 9 million.

In 2015, Egypt discovered the largest natural gas field in the Mediterranean, the well-known Zohr. Zohr holds an estimated amount of more than 30 trillion cubic feet of recoverable natural gas. By 2019, Zohr achieved a daily production of 2.7 billion cubic feet per day, and Egypt has a total population of approximately 100 million.

Finally the island country of Cyprus, discovered the Glafkos field in 2019. Glafkos is expected to deliver between 5 and 8 trillion cubic feet of natural gas, an impressive amount for the small country with a population of only 1.2 million.

From the Black Sea to the Eastern Mediterranean

The discovery of the natural gas field in the Black Sea comes at a critical moment for Turkey. Since late July, Ankara has attracted much attention, due to the controversial seismic research activities within parts of the Greek continental shelf.

Erdogan is seeking to establish a wide energy zone spanning from the Eastern Mediterranean all the way up to the Black Sea. The combination of grandiose announcements — in the case of Black Sea — and hybrid methods to create a de facto situation in the case of Eastern Mediterranean all fall within the same plan.

Erdogan’s ambitious strategy is to showcase Turkey as a remarkable regional energy hub and a unique energy corridor in a strategic crossroads between the East and the West.

L'articolo Will Turkey’s Gas Discovery in the Black Sea be a Game Changer? proviene da InsideOver.

Year on year growth in demand for liquid natural gas (LNG) has mostly come from developing countries. Are the increasing imports of LNG a positive outcome or a road to increasing dependency on external sources?

Trends in LNG Exports

Two main trends associated with LNG exports and imports have emerged in the last few years. Growth in LNG imports has come from developing countries. Certain patterns have also emerged in countries contributing to the growth of the liquid natural gas industry.

From a geographic perspective, the main regions accounting for growth in LNG imports are Asian countries. Particularly, countries in Asia which are in South and Eastern Asia.

Another pattern in the imports of LNG has been the increasing exports from countries which are already world leaders in fossil fuel exports. Qatar, Australia and the United States are some of the leaders.

The Key Importance of Pricing

The price of liquid natural gas, compared to other fuels has played a role in the imports of this fuel type. The price of LNG exports from the US has steeply declined since 2014. With lower prices, how will the increasing imports to developing countries will affect their foreign relations and the economy?

The countries from which developing countries buy liquid natural gas, play an important role. The developing countries which saw most grow in LNG imports, imported the fuel mostly from developed countries.

Foreign relations also affect the buying process. Buying from neighboring countries or allies is, after all, different than buying from countries with whom relations aren’t as warm. While buying from allies has only given marginal benefits to countries like Bangladesh and Qatar, India’s purchase of LNG from the United States has facilitated their relations in other areas.

Economic Downsides of LNG

A cheaper energy source like LNG also has its downsides. Imports from external sources, while economical in the short term, could decrease energy independence of the importing countries in the long term. There are several examples in developing countries where LNG is a trade-off between independence and diversification. Turkey has diversified its energy sourcing by increasing LNG imports, and Chile is preparing to use LNG imports once again.

However, the overall trend has not been beneficial to energy source diversification and independence in developing nations. Particularly, in South American countries. Countries like Brazil have decreased LNG imports and its role as an energy source.

Liquid natural gas exports are divided between government-controlled companies and private ones. The political implications of importing gas from one or the other type of seller also differ. With the growing entanglement of public and private enterprises in the energy sector, it may seem as if state and non-state actors and their differences are being blurred. Yet, in developing countries, there are still large and expanding differences (politically-motivated decisions, prioritization of internal development rather than lower costs).

The Pros and Cons of Developing Countries’ Rising Dependence on LNG

From economic point of view, increasing LNG imports in developing countries could deliver both positive and negative long term impacts. The cheaper and sometimes cleaner energy source should reduce costs of production and the negative effects of pollutants.

On the macro level, in countries where LNG fuel is used by individuals, effect on their disposable income is bound to appear. In two developing countries with largest growth in LNG imports (China and India), the energy source could increase disposable incomes because of being relatively cheaper compared to other fuel sources, and decreases in price.

Governmental spending on energy generation and fuel sourcing is also bound to be affected. While LNG is a cheap source of energy, and a good tool for increasing the speed of economic growth (in the form of lowering expenditure of businesses on their energy and fuel needs), it could be damaging for long term economic development.

Time to Think Long-Term

Without investments into now more expensive — but cheaper in the long term renewable energy — developing countries face a perilous future. They could be left with only a more expensive source of energy, and the infrastructure for it. Moreover, spending becomes an even larger gamble because of LNG imports being subject to price volatility due to non-energy related factors.

There is some uncertainty to this hypothesis. Because renewable energy infrastructure costs are decreasing year by year, choosing to not invest into it in the present could be an economical decision. Yet, spending billions on energy infrastructure which will get relatively more expensive in the future, is also not the most rational decision.

Such dilemmas are not faced by exporters. For LNG exporting countries, several benefits come from the exports of this fuel type. Because of the early set prices of liquid natural gas exports and their mild fluctuation, there is less volatility and room for manipulation. Hence, liquid natural gas exporting countries can use this benefit for convincing potential importers, and making easier sales.

Stronger ties with importing countries are a given. In many countries, LNG trade relationships have brought on a larger concern for political developments in the parties on the other side of the trade. However, energy ties are far less impactful and strong when countries with already strained relations, or private enterprises engage in the trade. LNG exports haven’t given a strong push for better relations of China and the US.

Boosting Domestic Production of LNG

The development of domestic gas industry so far has been the most noticeable benefit for the exporting nations. It not only allows to better serve exports, but also to have a fallback for increasing domestic demand.

In contrast to exporting countries, for countries importing the fuel, it expands dependence on external sources. LNG contracts can be difficult to renegotiate, and in times of price drops, not all buyers have been able to take advantage of them.

A drawback for imports of LNG into developing countries is the infrastructure requirement and difficulties that come with it for developing countries. Pakistan has experienced a slow pace of building of LNG infrastructure, even with 4^th place in growth in imports in 2018. For other liquid natural gas importing countries in the developing world, the mission to build more objects is often impossible without loans.

This drawback of importing LNG is often compounded by a lack of qualified workforce and a skills shortage for solving problems with the gas infrastructure objects. Outside help is often a necessity both for normal operations, and for accident management.

The increasing development of the domestic industry is a benefit all exporting nations can reap. Exports of other fuels also promote better relations between countries. Yet, not all benefits come without a cost to the other side. LNG exports have one benefit for the exporters, which is also a drawback to the importers. Importing nations not only buy the LNG from certain nations, but also the expertise and loans to import the fuel. In cases like these, many developed nations with sales of LNG, also guarantee sales of related products.

The push to make a choice between fossil fuels, including liquid natural gas, and renewable energy will increase in the future. If the premise of decreasing costs of renewable energy will follow, then the current use of LNG is the most beneficial choice for developing countries.

Factors working against savings on energy in developing countries have been high infrastructure costs, need for external financing, and not always placing value on the cheaper energy options. There are several reasons why they are bound to deliver to deliver a low impact. These include improving financial states of developing countries and decreasing shipping and infrastructure costs. Yet, even with low impact of the current issues, they are a damaging effect to both present and future savings.

With LNG, savings also extend to pollution. Liquid natural gas is a good alternative to oil and coal, which are often used as energy sources in developing countries. In the present, alternative energy sources for largest importers of LNG don’t necessarily have to be a priority, especially when energy flow disruptions are unlikely.

With ongoing processes having a positive effect on energy diversification in developing countries, larger LNG imports are more of a strong push for growth, rather than dependency.

L'articolo Is Rising Demand for Liquid Natural Gas a Zero-Sum Game? proviene da InsideOver.

Iran has discovered a new natural gas reserve, according to a report from its oil ministry on Oct. 13. The underground field located in the southern province of Fars near the Persian Gulf, holds 19 trillion cubic feet (tcf) of the resource which Tehran estimates could produce 400 million barrels for a total of $40 billion. The new field, named Eram, adds to an already-large natural gas supply, which is second only to Russia. 

“We have the potential to identify more undiscovered oil and gas reserves (in the country) by using geophysical exploration techniques and discovery drilling and will definitely add to Iran’s national wealth,” said Reza Dehghan, deputy managing director for National Iranian Oil Company (NIOC).

As United States oil sanctions continue to strangle the Iranian economy, the discovery of more natural gas reserves could help revitalize the struggling nation. Amid a sharp decline in energy exports, Tehran is hoping to increase trade by leveraging its wealth of natural gas. The US Energy Information Administration reports that Iran uses 6.9 tcf of the 9.5 tcf it produces annually, but if production can be boosted, several international customers could benefit, namely China and India. In 2017, three-quarters of its exports were destined for Turkey; other buyers include Armenia, Iraq, and Azerbaijan. 

In 1995, Iran and Pakistan signed a deal to create an oil pipeline that would run to India. The project has experienced many setbacks, however, mainly from Pakistan refusing to complete its portion of the pipeline. Although the Iranian section is complete, the Pakistani portion appears to be indefinitely held up despite some deals negotiated in the past 10 years. Consequently, India decided it would pursue an under-sea route directly between the two nations. 

The Iran-Pakistan pipeline, if revived, would also facilitate easier exportation to China, a market which, like India, is expected to grow two to three per cent per year. 

“Gas is the most important energy of the world in the future and Iran possesses the world’s largest gas fields,” Iranian First Vice-President Eshagh Jahangiri told a Chinese delegation. “And we are ready to export gas to China through the Iran-Pakistan gas pipeline.”

For its part, China has publicly supported continued trade with Iran even as sanctions and a US-China trade war cause instability. Importing natural gas would be one way to get around sanctions and help the Iranian economy. The Asian market is collectively in dire need of a natural gas boost, a stimulus that could only come from Iran or Russia. The Asian Development Bank reported that the supply-demand gap during peak hours has increased annually since 2014. 

Some countries, like Pakistan, have passed legislative measures to conserve energy and at one time, were eager to import from Iran. This may be one reason it continues to renege on its deal to complete a pipeline to India, so that it can keep Iranian natural gas for itself instead. Under a 2013 plan, it would have imported 22.5 million cubic meters per day.

Like Pakistan, India too has faced shortages, which it has attempted to stymie by purchasing reserves from Qatar via an undersea pipeline. At one point, the US convinced New Delhi to abandon its plans in 2013 to import from Iran by swaying it with a civil nuclear deal. 

In China, the situation is different, however. Demand is predicted to triple over the next 20 years, according to the Middle East Policy Center. Importing from Iran would require the completion of the Indian section of the pipeline, however, but would be an innovative way to thumb its nose at US sanctions. Beijing’s willingness to do so is questionable though as it recently left the South Pars natural gas field which is shared by Iran and Qatar. The abandonment of the world’s largest field was as a result of increasing US sanctions.

Alternatively, Iran could horde the reserves for itself. According to NIOC, it is substantial enough to power Iran for 16 years. There is the lingering question of exactly how Iran could wield its discoveries in the face of sanctions, which apply to natural gas just as much as crude oil. Absent buyers who are willing to defy the sanctions, Tehran could instead focus on growth at home as it reinforces its energy independence. 

Currently, buyers of Iranian natural gas included Iraq and Turkey, the former of which has received a renewed sanctions waiver to continue its imports. In September, Turkish President Recep Tayyip Erdogan said trade between the two countries would continue, although overall imports were down. 

Aside from sanctions, another issue facing Iran is the development of refining facilities. As illustrated with the South Pars project and China’s exit, US sanctions have an effect not only on trade, but also development. For Tehran, this means that development of new fields must be undertaken without the assumption of help from international partners. 

Iran has the natural resources to boost its economy, but to do so must find willing partners and complete pipelines to transport them. Both are severely lacking at the moment, which casts a shadow on the recent discovery of the Eram reserve field. While it is welcome news for Tehran, questions abound on how it can capitalize on the discovery. 

L'articolo Iran Discovers Natural Gas Reserve, but Sanctions Make its Utility Uncertain  proviene da InsideOver.