By Floros Flouros(*) and Dr. Athanasios Dagoumas
In this study, the importance of HydroCarbon (HxCY) exploration in Exclusive Economic Zones (EEZ) and most particularly its implication on the involved countries is examined. Moreover, it is well known that Cyprus has been in conflict and confrontation with Turkey during the last decades. It will be argued that the continuation of the HxCY exploration from Cyprus inside its EEZ will strengthen its position with regard to Turkey which means that it will give to the Cyprus Republic a competitive advantage versus Turkey.
The Critical Success Factors (CSF) that affect positively the Cyprus-Turkey relation in the case of HxCY exploration in Cyprus’ EEZ will be identified and then prioritized/ranked by importance/contribution to the examined relation. In addition, a list of export options for the Cypriot government is also considered and it will be investigated whether political or economic/financial factors should be taken into consideration for the choice of such export options.
Framework of analysis
The Eastern Mediterranean region has been facing challenges also related to the energy landscape. Since the economy is foreseen to grow further while at the same time the population of the region is expected to grow from 45.3 mill in 2010 to around 60 mill in 2030, energy demand should also increase significantly over the next years.
On the basis of the Exclusive Economic Law (Law no. 64(I) 2004 amended by 2014 Law), “Cyprus declared its EEZ, the outer limit of which shall not extend beyond 200 nautical miles from the baselines” from which “the breadth of territorial sea is measured in accordance with UNCLOS” .
In Table 1 short summary is presented regarding the agreements that Cyprus has concluded so far in the East Mediterranean region with its neighboring countries like Israel, Egypt, and Lebanon but not with Greece, Syria and Turkey and the Palestinian Authority.
Table 1: Agreements between Cyprus and other East Mediterranean countries
|Country||Date of delimitation agreement/EEZ||Remarks|
Delimitation Agreement entered into force
Agreement about cross-median line HxCY resources
Delimitation Agreement entered into force
Not ratified by Lebanon yet. Some difficulties still exist, due to ongoing dispute between Lebanon and Israel about their EEZ settlement
Delimitation Agreement entered into force
Even though Israel not signed UNCLOS yet
|Greece||Not yet (!)|
|The Palestinian Authority||Not yet|
In Figure 1, the Maritime Boundaries in the Eastern Mediterranean region are presented .
Figure 1: Maritime boundaries and Exploration blocks in East Med at end-2012
(Source: Darbouche at al., 2012).
Turkey considers that the Northern part of Cyprus is of geostrategic importance for at least two reasons: it affects Greek-Turkish relations and it is of global geopolitical interest due to the location .
Despite Turkey’s recent activities in Cyprus’ EEZ, that are mainly aimed at preventing Cyprus from exercising its sovereign rights in its EEZ, all licensed companies finally “proceed with their exploration programs, in line with the licenses granted by the competent authorities of the Government” .
Finally, it is important to identify those Critical Success Factors (CSFs) that affect positively the Cyprus-Turkey relation in the case of HxCY explorations that have started in Cyprus’ EEZ. As indicated in the previous Table 2.l, CSFs are those key variables that have a tremendous impact on how successfully and effectively an organization meets its mission and in the examined case how Cyprus can continue exploration activities in its EEZ leveraging such a success to its relations with Turkey.
The Research Question
Further to the previous analysis, it is now necessary to address the Research Question and then to search for the useful data and information to answer it. The Research Question is considered very crucial even though the least addressed part of the research process .
In the current case, the Research Question can be defined as below:
Identify the Critical Success Factors (CSFs) that would affect positively the Cyprus-Turkey relations in the case of Hydrocarbon Exploration in Cyprus’ Exclusive Economic Zone (EEZ).
- The identity of the research which took place is presented as following:
- Research: Qualitative.
- Type/Method: Interview (one – to – one and electronic).
- Type of Interview: Semi structured.
- Sampling: Purposeful sampling and most particular snowball effect.
- Size of sample: As mentioned above; the sampling is terminated when no new info is forthcoming.
- Selection criteria: relevant to the field, highly educated (academic degree and over), ethnicity of Cypriot, Greek, Turkish, other.
- Period: beginning of May – end of July 2015 (3 months).
The results are presented in Figure 2, in which EU and USA are considered as the most influencing actors in such cases, since they have been mentioned by almost all the interviewees. Following, Cyprus and Turkey are those countries that are supposed to affect more Cyprus in its actions related to the HxCy exploration and furthermore in finding choices on how to export any quantities from its territory in the near future.
At the same time, commercial companies like those participating in the license part, exploration activities, etc. are also considered that they play an important role in the final plan. Finally, other players mentioned during the interviews are counties like Israel, Greece, Egypt and the Northern part of Cyprus.
Figure 2: Main Stakeholders involved in the exploration and trading gas in East Med
(Source: Authors, 2015).
Stakeholders as institutions like EU and UN are believed to be important factors that can affect the progress and success of the projects and any exports in the region. Technical and geological issues, like the depth of the sea, the morphology of the surface, whether onshore or offshore facilities are all considered by the responders as critical parameters for the preparation, design and evaluation of projects in the gas fields in the Eastern Mediterranean region as per the survey took place during the period May-July 2015.
Figure 3: Critical Success Factors (CSFs)
(Source: Authors, 2015).
Regarding the possible options the Cyprus to export gas, in Table 2 are presented several answers from the responders during the survey:
Table 2: Answers from interviewees regarding better options for Cyprus to export gas
|Answer 1||Answer 2||Answer 3||Answer 4||Answer 5||Answer 6|
|Pipeline to Jordan||From netback view: Egypt could give the best ROI/netback. However, there is a risk since climate is not the best. It looks the most reasonable option but not sure if it can be finally done.||LNG is not recommended due to small qties.||The LNG looks problematic. There is a need for infrastructure.||LNG at Vasilikos: it adds power to Cyprus (having the infrastructure at your own land). There is space available at Cyprus.||The ideal would be that CY-TR-ISR to cooperate closely.|
|Pipeline to the Palestinian Administration in the West Bank.||From the risk view: the LNG looks preferable, which is not possible to be done (taking into consideration existing amount of gas).||CY-Greece pipeline: Does US support it, since it could compete and replace Russian gas?||Alternative ways for development needed and the needs for infrastructure that make sense to export the NG.||Pipeline to Cyprus due to the distance and geopolitical reasons.||LNG or pipeline is a function of qties (need to be high).|
|Pipeline to the Gaza Strip.||If qties 3 tcf or more, then LNG. Thus, taking into consideration existing amount of gas it does not look a choice (and additionally Noble does not have any experience with LNG).||Exports to Egypt: yes (+) while Exports to Turkey: neutral (-).||
Pipes and LNG are f(qty, market prices).
Export to Greece is not recommended because it would have serious technical problems (deep sea, seismic region, distance, etc) and thus a huge cost
|If you want to add value to Turkey, then you decide to pass the pipeline through it. Thus, the question is whether it can go to Greece.||Israel-Cyprus-Greece electricity interconnector is a political issue.|
|Pipeline to Turkey.||
Pipeline to Greece: no way. Huge cost, big risk.
Turkey: it could be an option (in theory) but Turkey would increase its power in the region.
|Exports to Palestine is not recommended for Israel.||Export to Egypt: yes, because of existing unutilized infrastructure and Egypt is looking for NG to support its growth plans. It is feasible. Sisi needs supporters/allies.||Depends on negotiations for the solution of the Cyprus problem|
(Source: Authors, 2015).
While energy supply is important for the economic growth of a country, there is a correlation between energy use and GNP. Since GNP is not the only factor “of level of civilization or quality of life in a country”, it is necessary “when planning for energy needs of a nation to consider alternative socioeconomic models, with emphasis on the socioeconomics and not only the economics” .
If a solution is not found in the Cyprus problem then it is impossible to see any cooperation with Turkey. Regarding export options for Cyprus, he mentioned that apart from the local market it can be also said that “the preferred monetization option is regional pipelines” and that Egypt “has been identified as the main export target for the project, together with the Cyprus domestic market” .
Cyprus mentioned that “Cyprus needs to continue trying to convenience Turkey on the advantages it stands to gain from adopting a policy based on international law and from contributing to the settlement of the Cyprus problem; a settlement that could allow the Turkish Cypriots to share the benefits of Cyprus’ natural resources and wealth .
There have been several cases in which the decision to start and build a project related to the energy (i.e. pipeline Baku-Tbilisi-Ceyhan, BTC) was taken based on political and geopolitical parameters and reasons and not economical-financial ones, since the later did not support the continuation of the project . It has been seen an inclination from the state to “use disruption of natural gas supply in order to promote foreign policy goals” which is supporting the idea of political domination when decisions are taken in energy policy of a country .
Based on the results of the qualitative research the CSFs that would affect positively the Cyprus-Turkey relation in the case of HxCY in Cyprus’ EEZ can be summarized in terms of importance as following:
- Most of the responds are related to the political/geopolitical environment as the most important success factor.
- Stakeholders as institutions like EU and UN are believed to be important factors, also.
- Geological issues like the depth of the sea, the morphology of the surface
- Technological issues as whether the facilities are onshore or offshore
- Commercial and economic issues, related to exploration costs, current and future prices in the Oil and Gas markets, incentives and taxation policy from the government, participation of the government into joint venture schemes with private companies, etc.
A short/medium term approach and a long term one had been considered as following:
Short/Medium term approach: due to the current status of Cyprus’ political relations with its neighbor’s, the liquefaction seems to be the only feasible option for gas exports for the country. Thus, there can be two subsequent options:
- Develop a joint liquefaction facility with Israel. This would help Cyprus to dispose of enough gas to synergies for its own LNG export projects. In addition, it would be EU’s interest since PCIs are already a reality and it also would assist strengthen EU’s security through diversification of sources. However, such a choice require huge investments while gas prices have been weakened radically during 2015.
- Participate in a construction scheme to build an export terminal in the Jordanian Free Economic Zone at Aqaba. This would help Jordan to get gas supplies through pipeline and thus serve also local needs.
- Continue efforts to participate into energy schemes, which to a great extent are “partnerships of an economic nature, can ease tensions, freeze or even terminate conflicts of a political nature” .
Long term approach: The regional geopolitical complexity in the Eastern Mediterranean is already affecting the progress in export gas in the area and as soon as regional conflicts are resolved then the pace of development will be increased significantly.
Cyprus needs to “continue trying to convenience Turkey on the advantages it stands to gain from adopting a policy based on international law and from contributing to the settlement of the Cyprus problem”; by this, it could possible for the Turkish Cypriots to “share the benefits of Cyprus’ natural resources and wealth” .
Based on the analysis herein, it can be said that any continuation of HxCY Exploration from Cyprus inside its EEZ can strengthen its position with regard to Turkey and this could be supported under conditions like the solidarity of the EU and support from US, the close cooperation with the neighboring counties of Israel and Egypt, the participation of international companies in available business plans in country’s territory and finally the continuation of the efforts of Cyprus towards the Cyprus problem which will eventually allow the Turkish Cypriots to benefit of Cyprus’ natural resources and wealth.
Based on the analysis presented in this study, it has been suggested that the LNG option seems to be one of the most realistic and promising options for Cyprus to cooperate with its neighbor country Israel provided that the state of Israel can relief any concerns about security and sovereignty. Then, the onshore liquefaction at Cyprus would be decided whether it would be related to the existing field of Aphrodite or others to come on stream in the coming years.
The other option for building FLNG in the Mediterranean or Red Sea could alleviate Israel’s fears and provide additional paths to new markets such as Asian avoiding the transportation through the Suez Canal.
Cyprus has decided to explore the possibility of exporting NG discovered in the Aphrodite field to Egypt through an underwater pipeline, while NG from the Aphrodite field will also be brought to mainland Cyprus for power-generation purposes. He also mentioned that the government of Cyprus “does not exclude prospects for energy cooperation with Turkey in the future provided that the Cyprus problem is first settled” which is a pre-condition .
Based on the literature and the analysis took place, the decision making for a country whether to proceed with an investment or project in the energy sector might be a combination of several parameters such as political or economic, geographical, historical, social, technological. It is also related to each country, since each one designs and follows its own energy policy and it will have differences from those of other neighbor countries.
The recent discoveries of HxCY in the territory of Israel and Cyprus, with a good probability in the future for counties like Egypt, Lebanon and Greece to follow, offer substantial opportunities to further deepen relations between them. Even though current quantities do not seriously affect global correlations, however the power of the closest markets shows the importance of energy as a synergist factor and this is important to be taken under consideration by the governments and authorities in the region.
Greece hardly can substitute Turkey in the planning of Israel and Egypt; however, it can be proved as a reliable partner whose opinion continues to have a casting value in regional affairs. Greece has shown that can achieve tangible results through practical agreements.
Actions that Greece and Cyprus take in pursuit of broader partnerships, initially to start a climate of mutual understanding, and then to design the conditions for foreign investments are deemed good. Without having any given differences in the Eastern Mediterranean region, the main challenge is to turn to normality amid intense pressure on societies and regimes.
Experienced diplomats note that Cyprus need to continue to build regional alliances with Israel and Egypt but at the same time to emphasize the development of its exploration program. During this period, time seem to be working in favor of Cyprus, while the same sources estimate that it is not easy for one company to lease drilling platform to carry out research in an EEZ internationally recognized as belonging to the Republic of Cyprus.
By invoking international law, being on military alert, strengthening strategic alliances with regional players, and harmonizing with the geostrategic interests of the US and EU (as well as the economic interests of large international companies) in the region, Greece, Cyprus and Egypt are taking cautious and systematic steps during a difficult period hoping to find more substantial backing among their allies and partners. Although the research was implemented before the discovery of the Zohr field in Egypt, this development works in favor of deepening the cooperation among Egypt, Cyprus and Greece. Some projects, such as the East-Med pipeline, increase significantly their maturity and possibility to be implemented, as disadvantages over the required gas volumes are surpassed, while they could guarantee considerable financing from the European Commission as a Project of Common Interest (PCI), towards enhancing European energy security and a functioning internal energy market.
(*) Floros Flouros has studied Chemical Engineering at the Aristotle University, Nottingham Trent University, UK and the University of Peloponnese, Greece. Floros has held several progressive managerial roles in the chemicals, minerals and polymers industry for the last 17 consecutive years. Email: floros.flouros[at]ntualumni.org.uk
 Himonas, S. 2015. Interview during the Qualitative Research of this subject.
 Darbouche, H., El-Katiri, L., Fattouh, B. 2012. East Mediterranean Gas: what kind of a game-changer?. Oxford Institute for Energy Studies. NG71.
 Murinson, A. (2006). The strategic depth doctrine of Turkish foreign policy. Middle Eastern Studies, 42(6), 945-964.
 Haverland, M. 2010. Conceiving and Designing Political Science Research: Perspectives from Europe. European Political Science, 9: 488-494. Doi:10.1057/eps.2010.61.
 Sonnino, T. 1977. A National Energy Policy for Israel. Energy, 2: 141-148.
 Zodiates, G. 2015. Interview during the Qualitative Research of this subject.
 Nourzhanov, K. 2006. Caspian Oil: geopolitical dreams and real issues, Australian Journal of International Affairs, 60: 59-66.
 Shaffer, B. 2011. Israel-New natural gas producer in the Mediterranean. Energy Policy, 39: 5379-5387.
First published by Geopolitics of Energy (GoE, March 2016) under the title: “Identification of the Critical Success Factors that affect positively the Cyprus Turkey Relations in the case of the Hydrocarbons Exploration in Cyprus’ Exclusive Economic Zone (EEZ)”. Republished by the authors permission.
Iran’s ‘oil for execution’ plan: Old ideas in a new wrapping
This week Iranian Oil Ministry is going to officially start a new plan that is aimed to be a new way for selling oil and tackling the pressures imposed by U.S. sanctions on the country’s oil industry.
The plan is to execute a barter system which allows domestic and foreign companies, investors and contractors to carry out projects in Iran in exchange for oil (I would like to call it “oil for execution”).
In this regard, as the official inauguration of this new program, a business contract will be signed within the next few days, under which a domestic company is going to receive crude oil in exchange for funding a project to renovate a power plant in Rey county, near the capital Tehran.
At the first glance, the idea of offering oil in exchange for execution of industrial projects seems quite a new idea, however unfortunately it is no more than the same old structure under a new façade.
U.S. sanctions and Iran’s coping tactics
Since the U.S.’s withdrew from Iran’s nuclear pact in May 2018, vowing to drive Iran’s oil exports down to zero, the Islamic Republic has been taking various measures to counter U.S. actions and to keep its oil exports levels as high as possible.
The country has repeatedly announced that it is mobilizing all its resources to sell its oil, and it has done so to some extent. However, considering the U.S.’s harsher stand in the new round of sanctions, the situation seems more complicated for the Iranian government which is finding it harder to get its oil into the market like the previous rounds of sanctions.
Selling in the gray market, offering oil in stock exchange, offering oil futures for certain countries, bartering oil for basic goods and finally bartering oil in exchange for executing industrial projects are some of the approaches Iran has taken to maintain its oil exports.
A simple comparison between the above mentioned strategies would reveal that they are mostly the same in nature, and there are just small differences in their presentation and implementation.
For instance, let’s take a look at the “offering oil in stock market” strategy, and to see how it is different from the new idea of “offering oil in exchange for development projects”.
Oil at IRENEX vs. oil for execution
As I mentioned earlier, one of the main strategies that Iran followed in order to help its oil exports afloat has been trying new ways to diversify the mechanisms of oil sales, one of which was offering oil at the country’s energy stock market (known as IRENEX).
In simple words, the idea behind this strategy was that companies would buy the oil which is offered at IRENEX and then they would export it to destination markets using whatever means necessary.
Since the first offering of crude oil at Iran Energy Exchange (IRENEX) in October 2018, the plan has not been very successful in attracting traders, and during its total 15 rounds of oil (including heavy and light crude) offerings only 1.1 million barrels were sold, while seven offerings of gas condensate have also been concluded with no sales. This has made some energy experts to believe that this whole strategy is doomed to fail.
The most important challenge that Iran has been faced in executing this approach is the impact of U.S. sanctions on the country’s banking system and its shipping lines, since the purchased oil, ultimately has to be transported from the agreed oil terminals via oil tankers to different destination across the world.
With the previous strategies coming short, nearly six months after the first offering of oil at IRENEX, in early May, Masoud Karbasian, the head of National Iranian Oil Company (NIOC) announced that the company plans to barter oil for goods and in exchange for executing development projects.
However, the “oil for execution” part wasn’t implemented until this weekend when Head of Thermal Power Plants Holding Company (TPPH) of Iran, Mohsen Tarztalab announced that the company is going to sign a €500 million contract under the new “oil for execution” framework for renovation of Rey power plant near Tehran.
According to Tarztalab, the TPPH decided to go for the deal after the sanctions prevented Japan from financing the renovation of Rey power plan.
Based on this deal, TPPH is going to renovate the power plant and in return NIOC will pay for the services in the form of crude oil. Clearly, TPPH is then in charge of the received oil and it’s their concern weather to export it or sell it inside the country.
A closer look at this deal, reveals how similar it is to other approaches that NIOC has been taking. Just like the oil offered at IRENEX, in this model, too, a company is left with an oil cargo which is banned from entering global markets. The buyers are once again facing financial barriers and shipping difficulties.
Although, like the first oil offering in which a few companies risked buying some oil, this time, too, TPPH, is making a significant gamble in signing this deal, but, just like the IRENEX experience, it seems really improbable for more companies to follow the state-owned TPPH’s footsteps.
The need for taking all necessary measures for withstanding the economic pressures of the U.S. sanctions is an obvious fact, however the ways of doing so should be chosen more carefully.
It seems that the government has been only wrestling with the “problem” here rather than attempting to find practical “solutions”.
Fortunately, in the past few months, the government seems to have seen the fact that the best way to withstand any economic pressure is the transition from an oil-dependent economy to an active, self-sufficient and independent economy which is more invested in its potentials for trade with neighbors rather than the oil market.
Solutions like offering oil in the energy exchange or oil for execution might be some kind of transition from traditional oil sales to new approaches, but they are not ultimate solutions in the face of sanctions.
To overcome the current economic conditions, the government has realized that it should have medium- and long-term planning and policy making.
Active diplomacy and attention to the energy needs and capacities of the neighboring countries and offering discounts for oil products, although are more time-consuming ways to increase oil sales, but will be more successful than the ways we discussed, and will yield greater benefits for the country.
From our partner Tehran Times
The who and how of power system flexibility
All around the world, power systems are changing fast. For example last year Denmark supplied 63% of its power demand from variable renewables (wind and solar PV) while last June Great Britain went a full 18 days without burning coal for power generation.
Yet despite such examples of progress, change has not been fast enough to meet the objectives of the Paris Agreement. In fact, power sector emissions have been on the rise over the past two years and investments in variable renewable power capacity appear to have stalled for the first time in two decades. Meanwhile electrification continues in sectors such as transport – and without accelerated decarbonisation, much of the growth in power demand will be met by fossil fuels.
But having more low-carbon electricity on the grid is not enough; we need to make better use of that low-carbon electricity. That means coordinated action on the transformation of power systems.
Power system flexibility – the ability to respond in a timely manner to variations in electricity supply and demand – stands at the core of this transformation. Luckily, policy makers and industry leaders across the globe are increasingly aware of the importance of flexibility and are taking action. Over the last two years, two Clean Energy Ministerial Campaigns have contributed to developing an understanding of what technical solutions for flexibility are available – in power plants, grids, storage and on the demand side.
That’s the ‘what’ of power system flexibility. But the more difficult questions are ‘how do we implement this flexibility?’ and ‘who should be involved?’.
The answer is: it depends. More precisely, introducing the appropriate measures to deploy power system flexibility requires a deep, thoughtful look at each country’s institutional framework. One key finding from the various workshops and forums organised by the CEM Power System Flexibility Campaign is that the changes necessary to activate innovative flexibility solutions inevitably deal with regulatory decisions.
One key myth that these same events are contributing to dismantle is that power sector regulation is far too complex and far too country-specific to profit from international sharing of best practices. In fact, it may be the contrary. This sharing of best practices is one of the main contributions of the joint IEA and 21st Century Power Partnership report Status of Power System Transformation 2019, which explores the various points of intervention, along with the relevant stakeholders for flexibility deployment.
The report describes how it is possible for policy makers to easily identify areas where they can directly enable change and areas where more targeted interventions may need wider stakeholder engagement.
It starts by looking at energy strategies, legal frameworks, and policies and programmes. These high-level instruments are usually what is thought of when looking at renewable energy policy support. While relatively far away from implementation, this level is particularly important as it sets the overall course for power system development.
Energy strategies typically lay out broad targets, such as China’s target of flexibility retrofits for 220 GW of coal-fired power plants in its 13th Five-Year Plan or Switzerland’s ‘Energy Strategy 2050’. Legal frameworks go one step closer to implementation by defining electricity industry structure along with the foundations of who does what, such as the UK’s recent bill for electric mobility or the distribution sector and flexibility reforms in Chile. Lastly, policies and programmes can be useful tools to test specific technology approaches or focus on specific aspects of the energy transition, for example Italy’s feasibility study on ‘Virtual Storage Systems’ or the creation of a working group for the modernisation of Brazil’s power sector.
While these high-level solutions are necessary and can be very effective, accelerating the energy transition for increasingly complex and decentralised power systems will increasingly require detailed fine-tuning of institutional frameworks. This is where we come to regulation, market rules and technical standards. By allocating costs and risk, regulation essentially determines who can do what, and how. Similarly, market rules and technical standards play a key role in shaping the interactions of different stakeholders in the power system.
In many cases, it may be necessary to update regulatory frameworks to recognise the new capabilities of new technologies in the power system. This might be the responsibility of the regulator in the case of vertically integrated utilities or spread across regulatory decisions, market rules and technical standards in the case of more unbundled power systems.
For example, if modern wind and solar power plants are technically able to provide frequency regulation, the recognition of their contribution to system reliability may require a regulatory decision to assess and validate their capabilities. It might also require modifying the system operator’s market rules to allow access to ancillary services, as was done in Spain.
Similarly, if digitalisation and decentralisation of the power system offer the potential of greater demand-side participation, it will be regulation that enables smaller system resources to participate in energy, capacity and ancillary service markets. How this is implemented would vary across jurisdictions, for example updating prequalification requirements may be necessary to enable aggregation, as in the EU, simply recognising independent aggregators as market players, as in Australia, or reforming retail tariffs as in Singapore.
But to know what changes should be implemented, and by who, it is critically important to understand the specific point of intervention and engage the right stakeholders. More broadly, it is important to start a conversation with a comprehensive set of stakeholders, to get an idea of what is possible and what is needed, and to compare experiences within and across countries.
Over the coming year, the IEA and PSF Campaign will continue working on this global dialogue to improve the understanding of regulatory and market design options for the deployment of system flexibility, supported by the Campaign’s co-leads – China, Denmark, Germany and Sweden. The PSF campaign is preparing initial steps to collaborate with CEM’s 21st Century Power Partnership, the Electric Vehicle Initiative and the International Smart Grid Action Network to look at the linkage between power system flexibility and transport electrification, an important conversation given the trend towards decentralisation driven by adoption of electric vehicles.
This work all aims to drive home one key-message: we need creative policy making if we are serious about accelerating the energy transition, and regulatory innovation and international cooperation are a good place to start.
U.S. Is World’s Largest Producer of Fossil Fuels
The world is using more, not less energy, with the United States (U.S.) leading this surge. This fact will continue changing the world geopolitically, and bring changes to global markets. British Petroleum’s (BP) seminal Statistical Review of World Energy 2019 was released in early June, and the findings revealed the U.S. is leading the world in production of fossil fuels. The report counters prevailing wisdom that peak oil demand is rapidly happening, when the exact opposite is taking place.
World oil records were broken in 2018; according to the Review: “a new oil consumption record of 99.8 million barrels per day (mbpd), which is the ninth straight year global oil demand has increased.” Demand for oil grew 1.5 percent. This is above the “decades-long average of 1.2 percent.”
The Review showed the U.S. is the world’s top consumer at 20.5 mbpd in 2018, and China was second at 13.5 mbpd, with India in third place at 5.2 mbpd. China and India are growing faster than world and U.S. consumer growth at 5 percent the past decade. What’s noticeable about the data is: “Asia Pacific has been the world’s fastest growing oil market over the past decade with 2.7% average annual growth.”
BP also released the emergence of a new global oil production record in 2018 that averaged 94.7 mbpd. This increased from 2.22 million mbpd from 2017. The U.S. came in at 15.3 mbpd, and led all countries by increasing production from 2017 by over 2.18 mbpd. The U.S. added 98 percent of total global additions, an astonishing figure.
Before the U.S. shale exploration and production (E&P) took off, oil was over $100 a barrel, but since the 2014 oil crash, global oil production has increased by 11.6 mbpd, and shows no signs of slowing down. What Russell Gold of The Wall Street Journal calls, “the shale boom,” has seen “U.S. oil production increase by 8.5 mbpd – equal to 73.2% of the global increase in production.”
What the numbers increasingly showed was the U.S. quickly surpassing Saudi Arabia. which is the second leading oil producer at 12.3 mbpd, and Russia in third at 11.4 mbpd. Though Canada has domestic opposition from environmental groups to fossil fuel production, Canada added over 410,000 bpd in 2017.
Add these figures to U.S. numbers, and North America is now arguably the most important source for oil in the world. The BP Review decided to add natural gas liquids (NGLs) to oil production numbers and found that U.S. NGL is higher than any country at 4.3 mbpd. This is higher than Middle Eastern numbers combined, and “accounts for 37.6% of total global NGL production.”
What does this mean for geopolitics? The axiom whoever controls energy controls the world now takes on new meaning with the U.S. drastically pulling ahead of Middle Eastern rivals, Russia and other global producers. Energy has always been a main factor in human development, and is especially true of today’s complex international, political and economic systems that have been in place since the end of World War II (WWII)
With abundant energy, scarcity no longer makes sense when global energy sources are now readily available. When geopolitical havoc comes from Africa since over 600 million Africans are without power, added to the over 1.2 billion people on earth without electricity that is a recipe for geopolitical disaster than can be avoided.
What abundant U.S. shale oil, and natural gas can provide, as well if steadfastly pursued, is putting a stop, or at least halting the rampant weaponization of energy from countries like Russia and Iran. However, both would argue they are doing this national security and sovereign protection.
The current path of demonizing fossil fuels won’t lift billions out of energy poverty, but it will serve to fortify Putin’s resolve. Western media outlets that back the get-off-fossil-fuels crowd do not seem to understand those geopolitical realities. Building electrical lines powered by U.S. natural gas over authoritarian dictators oil and natural gas supplies is a great pathway to promoting democratic capitalism, energy-sufficient nation-states, and continents with market economies.
This will lead billions out of despair, and solve a host of geopolitical problems that has vexed the U.S., EU, NATO and UN for decades. All of these problems will be solved without a shot being fired, or another fruitless war occurring.
By the U.S. countering the weaponization of energy through increased oil and NGL production this has national security and foreign policy implications that affects literally every person on the planet. As an example, if Ukraine, a NATO Member Action Plan applicant since 2008, can be bullied, annexed and invaded without consequence from the West, then global economic markets can be crushed on a whim.
Understanding foreign policy decisions through the lens of energy can lead either to chaos, or the deterring of determined enemies, and that’s why it is so important the U.S. continues leading the world in oil and natural gas production.
When more than 80 percent of the world’s energy comes from oil, natural gas and coal, while understanding “fossil fuels have enabled the greatest advancements in living standards over the last 150 years,” then energy is the number one soft and hard power geopolitical weapon outside of a nuclear arsenal.
“Leading from behind” and “resets” favored by the former U.S. administration won’t help Ukraine or other Russian border states under systematic assault. Trillions in economic growth is then stifled over energy concerns when the exact opposite should be happening.
Viewing the U.S.’ number one oil producer status through the prism of stopping authoritarians, and moving international relations toward the U.S.-led order is the best hope for the world in this perilous century. Geopolitically, it may also be out best hope for growth and forestalling another global war.
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