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India’s gas-based economy vision seeks subsea pipeline option

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Authors: Manish Vaid and Darshit Paun

India’s hunt for developing a sustainable economy should not only involve the push towards renewable energy sources but also a firm commitment towards increasing in natural gas base, as also reflected in the statement of India’s Petroleum Minister. The efforts to this direction include increase cheaper LNG imports and reviving its gas pipeline diplomacy through undersea gas pipeline such as Middle East to India Deepwater Pipeline (MEIDP).

Natural gas as a bridge fuel could address the uncertain nature of renewable energy sources, particularly with respect to financing capital cost and innovation. Natural gas can further compliment renewable energy by keeping the wholesale electricity prices low when renewables such as solar and wind are not producing optimally.

Though, the irony is that India, despite the appreciation of the fact that the share of natural gas in total energy mix has to be increased to curb emission, India has so far failed to do so. Resulting in falling domestic gas production and concurrent increase in its demand, India continues to move up in its trajectory of importing natural gas, which has now gone over 40 per cent of its total natural gas requirement.

According to Petroleum Planning and Analysis Cell (PPAC), India’s cumulative projected natural gas imports from April to June 2016 accounts for around 50 per cent of the total natural gas consumption, which is up by 9 per cent on year-on-year basis, signifying consistent increase in demand-supply gap. This gap is largely met through LNG supplies via four LNG terminals having a total capacity of 25 million metric tonnes per annum (MMTPA), albeit with low operational capacities such that of the Kochi terminal, mainly because of lack of evacuation infrastructure in place.

This accentuates the need for a small scale LNG value chain supported with more intensified natural gas grid, which as on April 1, 2016 is limited to 16,250 km pipeline with another 12,687 km to be added keeping an eye on India’s projected gas demand. According to the 2016 IEA Medium-Term Gas Market Report, India’s gas demand is set to grow at 6.5 per cent per year by 2021. Its consumption too is projected to grow by 38 per cent from 52 billion cubic metres in 2015 to 72 BCM in 2021.

While the current low oil and gas price regime is favouring India’s LNG imports, the tide may turn after crude oil prices start increasing because India’s most of the LNG are indexed to global oil prices. In such case an increase in global crude oil prices could push the LNG prices up unless Indian buyers accordingly re-negotiate long term contracts just like they did with Qatar’s RasGas and now in the process of repeating the same with Australia’s Gorgon Project. To mitigate the high LNG prices India can also get connected with hub based pricing, such as the Henry Hub or can even form a strong alliance with LNG buyers of Japan, China and South Korea.

While the LNG prices are expected to remain around the same levels in next 3-4 years resulting from additional gas supplies from countries like Australia, Canada and at the later stage from even Mozambique and Tanzania, it would be prudent for India to strive for undersea gas pipeline option, more steadfastly. This is despite the realization of the fact that LNG suppliers worldwide have invested heavily in their allied infrastructure.

Thus an additional and cost effective route to import natural gas from gas rich nations would help India to have a greater bargaining chip in the long run to fully reap the potential of its rising natural gas demand.

India’s pipeline diplomacy, which has largely revolved around three main transnational natural gas pipelines, namely, Turkmenistan-Afghanistan-Pakistan-India (TAPI), Iran-Pakistan-India (IPI) and Myanmar-Bangladesh-India (MBI), the revival of the same through MEIDP, initiated by SAGE India (SAGE), could be a better option.

This is because MEIDP is now considered to be a feasible option largely due to the technical advances made in undersea gas pipeline, ever since Oman-India Pipeline (OIP) Project was envisioned in 1990s and after export of natural gas from Iran’s giant gas field is now available to the world resulting from the Joint Comprehensive Plan of Action (Iran deal).

The 1300 km SAGE undersea gas pipeline, bypassing Pakistan’s territorial waters, is expected to start from Chabahar in Iran and Ras al Jafan in Oman and end in Porbandar, Gujarat, with an alternative tap-off to Mumbai under consideration, which can help India to diversify its natural gas supplies.

Nord Stream offshore pipeline, which is of the same length as that of the proposed MEIDP, is already transporting Russian natural gas to Germany and other parts of Europe. The successful operation of Nord Stream pipeline reinforces the faith in technology that can bring such a proposed project to reality.

Interestingly, low LNG prices in the near term, an array of LNG infrastructure proposed in the next five years and a comparable transportation tariff, may give rise to winds of skepticism around the policy makers as to whether the huge investment in MEIDP may be debated. However, MEIDP, with the incremental benefits comparable to other transnational natural gas pipelines in question, can form a cornerstone for India’s energy security, especially at a time when Iran is ready to offer natural gas at a reasonable price for the long term.

In addition, Chabahar port, being the proposed starting point for MEIDP, indeed fits in the geostrategic calculus of India to gain access through Persian Gulf as also to Central Asia, wherein swapping of gas from this region with that from Iranian gas is very much the possibility. Hence, the MEIDP can become a key piece in India’s energy security Jigsaw and play a vital role in offering concrete solution to India’s gas-based economy vision.

Manish Vaid is a Junior Fellow with the Observer Research Foundation, having research interest in energy policy and geopolitics.

Darshit Paun is an energy sector professional. He holds a Masters in Business Administration in Energy & Infrastructure from Pandit Deendayal Petroleum University.

Disclaimer: Views expressed in this article are those of the authors

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OPEC’s big test: A choice between right and wrong

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As the Organization of Petroleum Exporting Countries (OPEC) prepares to meet later this week in Vienna, tension is rising among some of the cartel’s biggest members on what is said to be one of OPEC’s biggest decisions since its establishment.

On June 22, OPEC members along with Russia are going to gather once again to decide whether it is time to end a deal which has held their oil production at a certain level for near 18 months and pushed the oil prices to significant highs.

Although in making the historical deal in 2016, all members came to gather as a unanimous voice to save the market from clashing, this time the situation is far from what it was in the past.

On one side, under the U.S. influence [either in the form of alliance or sanctions] Saudi Arabia and non-OPEC-member Russia, which had a significant role in reaching the deal, are said to be willing to ease the production cap and use some of their spare capacities.

On the other side, less privileged OPEC members like Iran, Venezuela, Iraq, Angola, Libya and Nigeria whose production levels have been under pressure by different geopolitical and economic factors like U.S. sanctions and budget deficit need the prices to stay at current levels.

Since the beginning, all sides of the deal stuck with the pact and fully complied with what was decided for their production levels. Shortly after, since the U.S. shale production wasn’t able to offset the production cuts that OPEC and non-OPEC nations made, oil prices rose significantly through 2017 up to 2018 and that made the Trump administration worried about the effect of higher prices on Trump’s political stance.

The U.S. president repeatedly voiced his dissatisfaction with OPEC through social media accusing the cartel of driving up the oil prices, this consequently caused some turbulence in the market and resulted in Saudi Arabia’s reaction. As U.S. ally, they raised their production levels slightly to appease Trump and keep the prices from further rising.
It is said, though, that U.S. and Saudi Arabia have been discussing ending the OPEC/non-OPEC pact long before this week’s meeting and Saudi is going to propose what is in fact a U.S.-induced decision in Vienna.

In accordance with Saudi Arabia, Russians whose economy has been under pressure by the U.S. sanctions also seem to be intrigued by the idea of taking some of the market share that the supply losses from Venezuela and Iran is going to present.

However, Iran as one of the OPEC founders, believes that the organization should not sacrifice its members’ interests for the sake of U.S. agendas.

After writing to OPEC and calling for the organization’s support for members targeted by sanctions, Iran, along with Venezuela and Iraq, is going to veto Saudi Arabia and Russia’s proposal at the June 22 meeting.

Iran’s representative to OPEC, Hossein Kazempour Ardebili, told Bloomberg on Sunday that “Three OPEC founders are going to stop it.”

“If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement,” the official said.

Iran believes that OPEC and Russia not only do not need to appease Trump, who sanctions two OPEC founders and also Russia, but they should stand against such arrogant attitudes.

All and all, considering the current global oil market which is almost balanced and well-supplied and the global economy which is stepping toward a stronger and more resilient position, hurting the oil supply and demand circle is not going to be a good idea.

It will be wiser for OPEC to abide by its basic values for protecting its members and make the right choice which is keeping the deal at least up to the end of 2018.

First published in our partner MNA

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Europe leads the global clean energy transition

MD Staff

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An ambitious political agreement on increasing renewable energy use in Europe was reached today between negotiators from the Commission, the European Parliament and the Council. Today’s deal means that two out of the 8 legislative proposals in the Clean Energy for All Europeans package (adopted by the European Commission on 30 November 2016) have been already agreed by the co-legislators. On 14 May, the first element of the package, the Energy Performance in Buildings Directive, was adopted. Thus, progress and momentum towards completing the Energy Union is well under way and the work started by the Juncker Commission, under the priority “a resilient Energy Union and a forward-looking climate change policy” is delivering its promises.

The new regulatory framework includes a binding renewable energy target for the EU for 2030 of 32% with an upwards revision clause by 2023.Thiswill greatly contribute to the Commission’s political priority as expressed by President Juncker in 2014 for the European Union to become the world number one in renewables. This will allow Europe to keep its leadership role in the fight against climate change, in the clean energy transition and in meeting the goals set by the Paris Agreement. The rules agreed today serve also to create an enabling environment to accelerate public and private investment in innovation and modernisation in all key sectors. We are making this transition to a modern and clean economy taking into account the differences in the energy mix and economic structures across the EU. Beyond updating and strengthening our energy and climate legislation, the EU aims at developing enabling measures that will stimulate investment, create jobs, improve the skills of people, empower and innovate industries and ensure that no citizen, worker or region is left behind in this process.

Commissioner for Climate Action and Energy Miguel Arias Cañete said: “Renewables are good for Europe, and today, Europe is good at renewables. This deal is a hard-won victory in our efforts to unlock the true potential of Europe’s clean energy transition. This new ambition will help us meet our Paris Agreement goals and will translate into more jobs, lower energy bills for consumers and less energy imports. I am particularly pleased with the new European target of 32%. The binding nature of the target will also provide additional certainty to the investors. I now call on the European Parliament and the Council to continue negotiating with the same commitment and complete the rest of the proposals of the Clean Energy for All Europeans Package. This will put us on the right path towards the Long-Term Strategy that the Commission intends to present by the end of this year”.

Main achievements:

  • Sets a new, binding, renewable energy target for the EU for 2030 of 32%, including a review clause by 2023 for an upward revision of the EU level target.
  • Improves the design and stability of support schemes for renewables.
  • Delivers real streamlining and reduction of administrative procedures.
  • Establishes a clear and stable regulatory framework on self-consumption.
  • Increases the level of ambition for the transport and heating/cooling sectors.
  • Improves the sustainability of the use of bioenergy.

Next steps

Following this political agreement, the text of the Directive will have to be formally approved by the European Parliament and the Council. Once endorsed by both co-legislators in the coming months, the updated Renewable energy Directive will be published in the Official Journal of the Union and will enter into force 20 days after publication. Member States will have to transpose the new elements of the Directive into national law 18 months after its entry into force.

Background

The Renewable Energy Directive is part and parcel of the implementation of the Juncker Commission priorities to build “a resilient Energy Union and a forward-looking climate change policy”. The Commission wants the EU to lead the clean energy transition. For this reason the EU has committed to cut CO2 emissions by at least 40% by 2030, while modernising the EU’s economy and delivering on jobs and growth for all European citizens. In doing so, the Commission is guided by three main goals: putting energy efficiency first, achieving global leadership in renewable energies and providing a fair deal for consumers. By boosting renewable energy, which can be produced from a wide variety of sources including wind, solar, hydro, tidal, geothermal, and biomass, the EU lowers its dependence on imported fossil fuels and makes its energy production more sustainable. The renewable energy industry also drives technological innovation and employment across Europe.

The EU has already adopted a number of measures to foster renewable energy in Europe. They include:

  • The EU’s Renewable energy directive from 2009 set a binding target of 20% final energy consumption from renewable sources by 2020. To achieve this, EU countries have committed to reaching their own national renewables targets. They are also each required to have at least 10% of their transport fuels come from renewable sources by 2020.
  • All EU countries have adopted national renewable energy action plans showing what actions they intend to take to meet their renewables targets.

As renewables will continue to play a key role in helping the EU meet its energy needs beyond 2020, Commission presented on 30 November 2016, as part of the Clean Energy for All Europeans, package, its proposal for a revised Renewable Energy Directive.

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A Clean, Secure Future: Reshaping Turkey’s Energy Sector

MD Staff

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Turkey has limited fossil-fuel reserves other than coal, but has huge potential in renewable resources, including hydroelectric, solar and wind power, among others. As the demand for energy grows, it has become increasingly important for Turkey to diversify its energy sources and increase national contribution, while also pursuing greater efficiency to manage the growth in demand.

Between 2012 and 2015, The Islamic Development Bank (IsDB) provided financing for the energy sector, supporting four renewable-energy development projects and six energy-efficiency projects. The IsDB extended a Financing Facility approach which worked through an implementing partner: The Turkiye Sinai Kalkinma (TSKB, known in English as the Industrial Development Bank of Turkey).

The combined costs of the projects amounted to US$641.2 million of which IsDB provided US$100 million. All ten projects are already proving to be mightily successful with the energy efficient projects having already decreased its greenhouse emissions by 1,006,000 tonnes, surpassing their target of decreasing emissions by 300,000 tonnes.

A New Approach in Islamic Financing

This was the first time IsDB used Restrictive Mudarabah financing. Under this mode of financing, The IsDB provides capital to Mudarib (in this case, TSKB) to invest in business enterprises, as per the agreed criteria. This approach eliminated the need for IsDB to enter into individual financing agreements for each sub-project being financed and gave a lot of freedom to TSKB as the local executing agency.

Hydroelectric Dams

Two of the hydroelectric dams supported by the facility: Goktas I and Goktas II lie in a valley deep in the mountains north of Adana. The projects combined capacity, once both dams are operational will be 276MW. Additonally a 52KM road, built under the Facility to provide access to these dams has helped to open up the entire region as well as three new bridges crossing the Zamanti River. These have had a significant effect on people living in the area as previously isolated settlements are now connected to larger towns and cities. This means that people can access hospitals, schools and other services more quickly. The construction company: Bereket Enerji responsible for the dams created over 450 jobs during the construction phase of the project and this almost doubled during peak construction times. Mr Ahmet Yilmaz, from Boztahta Village, who works as a general foreman spoke of the benefits of the project. “Previously people were mostly goat herders or seasonal workers in a nearby chrome mine. But the salaries in construction are much higher”.

Solar Panel Projects

The facility has also supported smaller projects that allow companies to generate their own electricity. One beneficiary was Prokon, an engineering manufacturing company located just outside Ankara. In March 2013, Prokon installed 2,040 solar panels on the roof of its workshop. Solar power has huge potential in Turkey especially as the panels generate around 75-95 MW during the peak months of July and August. Between April 2013 and February 2016, Prokon generated around 1,835 MWh from the panels in total. The process has been so successful that Prokon now sells energy back to the National Grid. Prokon have also pursued development of other solar powered equipment such as solar-tracking systems that enable panels to rotate and ‘follow’ the sun thereby generating more power.

Re-using Heat to Reduce Costs

Batisoke, Cimento, a cement company that installed a waste heat recovery system at its plant near Aydin is an example of the country managing its growing demand for energy. This system recycles the heat produced by the clinker-producing process to generate electricity. The successful installation means that the system now provides a significant chunk of the plant’s electricity needs. By reducing costs, the company has become a national energy competitor.

Cheaper, More Efficient Steel Production

The facility has also supported projects in the steel sector. Turkey was the world’s eighth-largest steel-producing nation in 2014 (with around 34 million tonnes). One company taking the lead is Koc Celik, who installed an oxygen-burning system at its plant in Osmaniye. The system increases the amount of oxygen entering the furnace during the melting process making the chemical energy processes involved more efficient. Electricity use has fallen from around 400 kilowatt hours (kWH) per tonne to less than 340(kWH) and the project itself provided 25 new jobs for local people.

The ten projects in the facility have had a huge combined impact. Together, the renewable-energy projects have a capacity of 370 MW and have made significant reductions in greenhouse gas emissions. These changes are making companies involved more internationally competitive while contributing towards global efforts to fight climate change. If future projects can build on this success, Turkey can look forward to a cleaner, more secure and efficient energy future.

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