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BRICS and the Doctrine of Energy Cooperation

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Authors: Urmila Rao* and Manish Vaid

One of the prime outcomes of the BRICS Summit 2016, (October 15-16, Goa, India) was setting up of three working groups by the Indian government; on counter-terrorism, cyber security and energy security. BRICS 2013 saw the issues of cyber security and terrorism discussed in the wake of US snooping revelations and terror-related violence in China. Summit 2013 saw the narrative revolve around countering cyber prying and terrorism through information sharing and following of best practices among Brazil, Russia, India, China and South Africa (BRICS)., BRICS 2016 built up on that sentiment.

While it may appear that the first two groups i.e. cyber security and counter-terrorism, hold BRICS common interest, it is in reality the third i.e. the energy security that will sustain the Forum. How so? First, there is every possibility that the narratives of cyber security and terrorism will get mired in the rigmarole of ‘one country dictating the other, or ‘one interfering in the internal affairs of the other.’ Consider individual positions. China holds significant investments in its ‘all-weather’ ally Pakistan, and in all likelihood will not change its friendly stance towards Pakistan in response to Mr. Modi’s ‘mothership of terrorism’ refrain. In April this year, China and Pakistan conducted a joint military exercise, the fourth since 2004. Further, despite India’s cringing, Russia too held its first ever joint military exercise with Pakistan in September, just weeks before the Summit. India’s call of isolating ‘terrorism-inflicting’ Pakistan may not be of interest to other BRICS countries. Guarding its neutral position on Mr. Modi’s call, China stated that it “opposes linking terrorism with any specific country or religion” a position gapingly different from the incumbent Indian administration.

Second, BRICS survival and growth rests on pursuing common interests. Individual countries’ hustling doesn’t help and interference is damaging. Political tangos are tricky, especially when countries’ relative positions don’t hold a common political, economic or geographical interest. Brazil and South Africa have, and in all probability, will choose to remain aloof on India-Pak tensions and/or on Indo-China border dispute owing to relative geographic isolation. Russia will play neutral on India-China-Pak fracas. In fact, on occasions India’s political leadership too has chosen to keep away from interference. It has kept a low profile on Russia’s position with regard to Crimea and Ukraine’s tread. China, too has avoided taking a stance on Russia’s heavyweight actions in its region.

Cooperation on energy, however, holds common interest and the hydrocarbon diplomacy promises to keep BRICS together. A non-disputable established individual position makes alliances easier; Russia and Brazil are oil producers and exporters, while India, China and South Africa are net importers. A hand-shake on energy, thus, becomes a win-win situation. While Russia needs to diversify its energy interest outside EU, emerging economies India and China need energy security for their continued development. Russia, with dependency rate of 17-25 per cent towards GDP growth, wants to counter reduced demand from Europe whereas growth ambitious China and India are willing to seize the opportunity.

The energy narrative of BRICS has flown smoothly since its first Summit, held in Yekaterinburg, Russia in 2009.The joint statement of 2009 stated that BRIC supported the “diversification of energy resources and supply, the security of energy transit routes; the creation of new energy investments and of new energy infrastructure, including the linkage between energy producers, consumers and transit states”. The Delhi Declaration, issued by India during the fourth Summit, in 2012, for the first time emphasized on ‘multilateral energy cooperation within BRICS framework’, this time with South Africa in the Forum which joined in 2010.              

The complimentary nature of BRICS energy relationship has helped the countries to clinch some of the energy deals that can help bridge the demand-supply gap. In 2014, for instance, Russia and China stuck a 30-year deal for Russia to build $42 billion ‘Power of Siberia pipeline’, a 4,000 kilometer-long line tapping two new source fields running from Siberia to China, expected to start in 2019. Russia offered Beijing a stake in its Gazprom’s Vladivostok liquefied natural gas (LNG) terminal and a 19 per cent stake in its oil giant Rosneft. China’s National Petroleum Corp purchased a 10 percent share of Vankorneft, the upstream subsidiary of state-owned Rosneft.

In 2015 Russia’s oil major Gazprom and China National Oil Corporation (CNPC) inked a deal for pipeline deliveries of natural gas from Russia to China via ‘Power of Siberia 2’ gas pipeline, a supplementary agreement between the two countries. In March 2016, Gazprom secured $ 2.2 billion loan from China. Earlier this year, China Development Bank Corp lent $10 billion loan to Brazil’s oil giant, Petrobras for oil import to up to the tune of 200,000 barrels a day.

The 8th edition of the Summit saw further agreements across hydrocarbon value chain, dubbed as “energy bridge” between Russia and India. Enlarging India’s larger presence in Russia’s hydrocarbon sector, both the countries agreed to cooperate on LNG sourcing by building an estimated $25 billion worth of 4,500-6,000-km natural gas pipeline from Siberian gas field, connecting Russian gas grid to India.

In the Roseneft and Essar deal struck during the Summit, for instance, by selling 98 per cent of its company to Russia’s Roseneft (for $10.9 billion), India’s Essar got the route of reducing its debt burden. In another win-win alliance, it is expected that Russia’s Gazprom and India’s GAIL will sign a deal on LNG.

BRICS has showcased that strong synergies can also be forged on adoption of clean energy as pledged in 2015 Paris Climate Change Agreement. The first meeting of BRICS Working Group on “Energy Saving and Energy Efficiency” was held towards that in Vishakhapatnam, India (July 4-5, 2016.) In this meeting, member countries agreed to cooperate in the field of energy saving and energy efficiency through joint research, technology transfer; conferences and best practices. Instead of remaining the odd one out, India ratified the Paris Global Climate Agreement this October and together with other BRICS nations, raised the bar on climate efforts.

Hydrocarbon cooperation can too be brought under the ambit of BRICS framework. The energy bridge planned by India and Russia should make China as a stakeholder, to reap the benefits of energy cooperation. Interestingly, in the recent proceedings of the 4th India-China Strategic Economic Dialogue held on October 7, 2016, India and China have agreed to cooperate on sourcing energy from international markets. Siberian gas field of Russia is one such markets where joint sourcing of natural gas can be done by India and China with an attempt to cut down is transportation cost, amid growing rising energy demand, through appropriate policy measures.

In the current backdrop of low global oil supply scenario, it’s wise to secure energy security through cooperation as opposed to one-upmanship.

Thus, the mutually profitable agreements of diverse nature, have and in all likelihood, will keep BRICS strong. It is the BRICS strategy of commerce which will keep the West on the edge and its ‘pivot to Asia’ a challenge. Western style of securing oil supplies by military interventions has so far been untenable. This has proven from 1953 coup in Iran to bombing of Libya in 2011 and following of the Carter Doctrine, 1980 stating use of military force if anyone tries to undermine the US control of Gulf.

BRICS has shown that reputation, goodwill and energy security can be attained by following the doctrine of cooperation.

(*Urmila Rao is a freelance journalist and researcher based in Dubai. She keeps a keen eye on the energy sector. Manish Vaid is a Junior Fellow with Observer Research Foundation, India. He has authored several articles on energy domain)

Disclaimer: Views expressed are personal.

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Carbon capture, utilisation and storage finally catches the spotlight

Laszlo Varro

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The recent Green House Gas Technologies Summit (GHGT), the biggest global event on carbon capture, was a good place to reflect on a technology that perhaps has the biggest gap between the aspiration of energy models and the investment reality on the ground, between the disappointments of the past decade and a gathering new wave of optimism.

In some circles, it is fashionable to write down this technology, carbon capture, utilisation and storage (CCUS). For some, CCUS is everything that needs to be left behind in the clean-energy transitions: big centralized facilities based on chemistry and mechanical engineering rather than big data, ongoing investments by large conventional energy companies that should be going the way of dinosaurs, and the continuous use of fossil fuels.

Some scepticism is understandable. The first IEA CCS roadmap, from 2009, makes for sobering reading. Consistent with the Group of 8 commitments adopted a year earlier, the report expected CCS projects totalling 22 GW in power generation and 170 million tons in industry by 2020 With a year to go, the current status for CCS falls well short of these goals: only 0.4 GW in power and around 32 million tons in industry.

But we should not dismiss this technology – in fact, CCUS is going to be critical to the global clean energy transitions, and why the IEA held a major CCUS Summit, with the UK Government, on 28 November in Edinburgh bringing governments and industry together to give the technology a new start.

Theoretically it is possible to achieve climate goals without CCUS. The recently published IPCC report has a pathway (P1) that arrives at climate stabilization without CCS by emphasising restraints on energy demand. However, this pathway entails energy demand declining to an extent  which as the IPCC righty emphasised would be unprecedented. For example, the average annual decline of oil demand from today till 2030 in this scenario would be twice as large as the decline triggered in 2008/2009 by a combination of USD $140 per barrel and the global financial crisis.

A robust energy efficiency effort is certainly the first pillar of any serious climate policy and it is very much incorporated into the IEA’s analysis. For example in our Energy Technology Perspectives a high speed train network replaces a third of domestic aviation in the United States by mid-century. Even with such assumptions, the decline in oil demand is much slower than what the IPCC scenario described above would demand.  It would be highly desirable to achieve this without a recession by global cooperation and bottom up, voluntary lifestyle changes. Nevertheless, ancient Greek dramas are so enjoyable today precisely because there has been much less change in human nature than in our technological capability. We better have technological solutions ready for the eventuality that human nature remains unchanged for another 20 years. The other IPCC pathways, which don’t have such demand restraint, have large scale application of carbon capture to deal with ongoing fossil fuel consumption, and eventually remove carbon from the air.

At this stage it is also useful to dispel some misunderstandings. Carbon capture is not an alternative to wind and solar deployment and should not stop reallocating investment from fossil fuels to clean energy. A credible climate stabilization pathway like the IEA’s Sustainable Development Scenario has an amazing scale up of wind and solar as the backbone of the transition, deployment way above the current investment activity that will stretch the limits for mobilizing investment and require major changes in electricity network.

Likewise, CCUS is not a pretext to stop investment reallocation. From a financial point of view the largest fossil fuel asset by far is oil upstream, which is intimately connected to transport, a sector where, due to dispersed and mobile emission sources, CCUS will not play any meaningful role. The largest application of CCUS is likely to be on coal whose upstream has an order of magnitude smaller financial valuation.

And even for coal, as one compares a “business as usual” trajectory with the Sustainable Development Scenario, around 85% of the reduction in coal plant emissions came from efficiency and renewables, leading to fewer coal plants running less hours and only a minority from capturing the emissions from continuous operation.

The role of CCUS is something different and focuses on overcoming three often neglected asymmetries. The first is the age profile of coal. There are countries that implement coal phase out policies, but they tend to be ones like the UK where coal mining peaked a century ago, and where the last coal plants were built in the 1970s. However, due to the massive investment wave of developing Asia, one third of coal plants in the world are less than 10 years old. They each represent a USD $2 billion capital investment and run on a cheap, well distributed and geopolitically secure energy source. Shutting them all down would be unrealistic given their role energy security. Retrofitting them with CCUS could be a feasible alternative.

The second asymmetry is between the truly amazing success of wind and solar and the slow progress in low carbon options for the heavy industry that represent a third of global emissions. To produce steel without carbon emissions would require the equivalent of all the solar panels in California to produce hydrogen and use it instead of coal in steelmaking – all for a single steel plant. This is possible and certainly worth researching and innovating, but should not be framed as an obvious cheap and easy alternative.

Last but not least, the third asymmetry is between the current momentum of the energy system and the uncomfortable facts of climate science. In the absence of a sudden transformation of social and political attitudes, the CO2 concentration will overshoot and carbon will need to be removed from the air.

The GHGT summit displayed an exciting mixture of a sense of urgency, an appreciation of the scale of the challenge but also a “this time for real” feeling due to positive developments in policy and technology. The most important policy development is in the United States, which introduced new investment incentives for both carbon storage and utilisation.

Importantly, whereas previous approaches tended to support specific projects, handpicking technology and location with a mixed tracked record to put it mildly, the new policy is a broad-based tax incentive putting a value on avoided emissions and unleashing the creativity and innovativeness of the private sector. It was refreshing to meet people who were hired as Head of CCS Business Development by major corporations, a job title inconceivable not long ago. A lot of the new US capture investment seems to go to gas rather than coal, which is understandable in the light of the unfolding gas revolution in the US economy.

GHGT also had a strong participation and commitment from China, the country representing half of global coal demand and perhaps the most advanced coal technologies. China took the first step towards CCUS with the first large scale integrated coal conversion/carbon capture project now under development. It has a very smart approach focusing on capturing an almost pure CO2 stream from a coal to chemicals process, enabling the high value added and clean utilisation of the country’s abundant coal resources. Game changer is an overused term, but China moving to CCUS in a systematic fashion would certainly qualify for it.

It was also very visible how innovation into both technology and business models are reshaping the prospects of CCUS, especially the interactions between carbon capture and hydrogen. The resurgence of strategic interest to hydrogen is strongly connected with carbon capture in multiple ways. The most basic is the source of hydrogen: today it is fossil fuels with over 10 tons of CO2 emitted for a ton of H2.

Capturing it is one of the possible pathways for clean H2. There are already operating projects in Canada, the United States and the United Arab Emirates. Those use the hydrogen locally in an industrial process, but there is a serious initiative to produce H2 from Australian coal with CCUS and export it to Japan.

The other pathway, wind and solar based electrolysis, is gathering momentum and likely to become robustly competitive. And even that has a carbon capture connection: in regions that have a large heavy industry but less attractive storage geology, attention and investment are shifting towards carbon utilisation. In many cases the basic concept is to combine the captured CO2 with renewable based H2 and then let imagination fly around various chemical pathways. All of these still require innovation and investment to scale up, but the commitment and optimism was already visible.

After the decade of disappointments, there may be some legitimate scepticism. Still, CCUS’s moment has arrived. And we should hope so, for the stake of the global energy transition.

IEA

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Kenya Charts Path to Achieving Universal Access to Electricity

MD Staff

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Kenya has achieved substantial progress in economic, social, and human development over the past decade. Significant progress has also been made in the energy sector. For instance, Kenya has been taking advantage of its rich renewable resources and has emerged as one of the global leaders in the use of geothermal resources as a clean fuel for power generation.

Thanks to strong government leadership, as well as private sector investment and support from development partners, Kenya has also experienced an impressive expansion of access to electricity.  Kenya now has the highest electricity access rate in East Africa: total access stands at 75% both from grid and off-grid solutions, according to the recent Multi-Tier Framework Energy Access Survey Report.

But there are a quarter of Kenyans still lack access to electricity.

Responding to this challenge, in December 2018 the government launched the Kenya National Electrification Strategy (KNES) – a roadmap for achieving universal access to electricity by the year 2022. With the help of geospatial technology, the strategy has identified least-cost options for bringing electricity to homes, businesses and public facilities. In addition to grid extension and intensification, it recognizes the important role the private sector will have to play in off-grid solutions, both mini-grids and standalone solar systems.

Universal access to electricity is a key requirement for meeting Kenya’s development goals under Vision 2030 –the country’s development plan and blueprint to become an industrialized and middle-income country providing a high quality of life to all of its citizens. Kenya ranked 94th globally in the recently released World Bank Human Capital Index with a 0.52 score. This means that a child born in Kenya today is 52% of who s/he could be with complete education and full health. Provision of adequate, affordable, and reliable electricity supply will be important supplement to the investments in health and education guided by Kenya’s Vision 2030 to help Kenya move up the index. Achievement of the Big Four Agenda – enhanced manufacturing, food security and nutrition, universal health coverage, affordable housing- is dependent on adequate energy supply.

The World Bank has been working closely with the Government of Kenya for many years and is committed to helping Kenya extend access to modern, affordable, reliable and clean energy. The World Bank supported the flagship Last Mile Connectivity Program and Slum Electrification Program, which have contributed to the phenomenal expansion of electricity access in the country in the last five years.  The World Bank is also supporting the government’s efforts to provide electricity to 1.3 million people in remote rural areas in Kenya’s underserved counties through off-grid solutions.

“Kenya’s experience is providing valuable lessons for other African countries in terms of the government’s commitment, incentive policies and regulation,” said Lucio Monari, Director for Energy and Energy Extractives at the World Bank. “Its efforts to expand and improve access to electricity will impact millions of lives for generations to come. The World Bank will continue to support the Government of Kenya in its ambitious plans to achieve universal access by 2022.”

World Bank

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Why No Questions Asked About Turkish Stream Gas Pipeline Project

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November 19 saw the completion of the offshore section of the 1,800-kilometer Turkish Stream pipeline to supply Russian natural gas to Turkey. Mentioning the project’s geopolitical significance in a speech during the completion ceremony, Russian President Vladimir Putin said that “Projects of this kind and this project in particular, are not directed against anyone’s interests. They are exclusively constructive in nature. They are aimed at developing relations between states, creating stable conditions for economic development and improving the well-being of our citizens. The implementation of such projects is a clear example of our ability to stand up for our national interests, because Turkish Stream serves the best economic interests of the Turkish Republic.”

When gas starts flowing through the Turkish Stream pipeline as scheduled in 2016, Ankara will no longer have to bother about transit risks for itself. Turkish Stream proves again that Russian-Turkish projects defy any third-country pressure, which is certainly there, but is effectively neutralized by Moscow and Ankara.

This situation comes in sharp contrast with the battles raging over the construction of the Nord Stream 2 pipeline, which is being actively opposed by the United States with President Donald Trump and other officials in Washington warning about Europe’s unacceptable economic and, therefore, political, dependence on energy supplies from Russia.

The Nord Stream 2 project is facing equally strong opposition also from Ukraine and Poland, which are eager to demonstrate their concern about safeguarding America’s interests. During a meeting with Donald Trump in September, Polish President Andrzej Duda, “expressed hope that Trump will stop the construction of the Nord Stream gas pipeline. The Polish president also said that he had discussed with his US counterpart how Washington could benefit from this since Russian energy supplies to Europe prevent the US from selling its LNG to the European market.”

Meanwhile, it looks like Ukraine and Poland are the only countries that welcome the hawkish statements made by US Energy Secretary Rick Perry. During a visit to Kiev earlier this month, Perry made a number of populist and illogical statements. “Thank you, President Petro Poroshenko, for your commitment to energy diversification. The US remains opposed to Nord Stream 2 and any energy source that can be held hostage by unstable state actors. The US stands ready to support our allies with abundant, affordable energy,” he said.

He also said that the “revolution of dignity” [in Ukraine] was a struggle for “economic freedom.” This is exactly the type of “freedom” the United States is forcing upon Ukraine by trying to raise gas prices for the people with the help of the IMF so that the cost of US-supplied LNG does not come as too much of a surprise to ordinary Ukrainians.

Natural gas supplies via the Nord Stream 2 pipeline are expected to begin in January 2020, and the Turkish Stream pipeline will go on-stream in 2019. This means that 80-85 percent of the natural gas transit via Ukraine will move elsewhere. According to the head of the Ukrainian Council on the Development of the Gas Industry and Natural Gas Market Leonid Unigovsky, “after the launch of the Turkish Stream gas pipeline, gas transit through Ukraine will decrease by 12–13 billion cubic meters a year.”

As a result, Ukraine will lose half of the 70-90 billion cubic meters of natural gas currently flowing through its territory.

Mindful of this prospect, Kiev representatives have repeatedly stated that Ukraine is counting on US and EU in thwarting the construction of the Nord Stream 2 gas pipeline. How come they haven’t they been saying the same about the Turkish Stream project?

Ukraine has always actively protested against the construction of the Nord Stream 2 pipeline, but has for most part ignored the Turkish Stream project, just acknowledging the mere fact of its existence and mentioning the possible consequences of its construction.

“The construction of the second half of the Turkish Stream pipe may be completed in 2018. It is almost 50 percent ready now and the rest will be completed next year,” the board chairman of Naftogaz of Ukraine, Andrei Kobolev, said in the fall of 2017.

“We expect that as early as late next year, the first leg Turkish Stream will take on a share of the [gas] transit through the territory of Ukraine,” he added.

The US position on the Turkish Stream project has never been as vocal and insistent as it has been on the North Stream 2. Kiev’s position has been the same, even despite the threat Turkish Stream poses to its economic interests. Just like that of the leaders of Mejlis (banned in Russia) who, despite their claim to have a special relationship with Ankara, have not protested against the construction of the  Turkish Stream pipeline, realizing full well that kowtowing to Washington’s interests  could cost them their more important relations with Ankara.

Why all this lack of attention towards the Turkish stream project? Washington wants Europeans to start buying its LNG, which, though expensive, brings democracy to the Old World, while simultaneously sticking to its anti-Russian policy. The US is also unwilling to antagonize a fellow NATO member, which plays an important role in the Middle East and the Syrian conflict.

Europe needs gas and doesn’t really care about where it comes from, provided that itkeeps non-commercial risks at a minimum [something Kiev worries so much about], and is available at an affordable price.

Ukraine wants to remain a transiter of Russian gas while simultaneously switching to LNG imports from the US and convincing the European Union of the importance of such an arrangement. Kiev’s fears are reflected in concrete figures: “… the implementation by the Russian Gazprom of the Nord Stream 2 gas pipeline project poses a major fiscal risk for Ukraine, which will lose up to 3 percent of GDP.”

Speaking of strange logic, Ukraine’s Foreign Minister Pavel Klimkin insists on the extension of the gas transit contract with Russia beyond 2020, which he believes could facilitate his country’s early EU integration. However, there are certain undercurrents here too. Ukrainian energy officials planned to minimize transit risks through the sale of the country’s gas transmission system (GTS).

“The Ukrainian GTS costs about $14 billion. Ernst & Young estimated it at 329 billion hryvnia ($11.9 billion), and so Ukraine will be looking for buyers of its ‘pipe’ outside the EU,’” in a thinly-veiled hint that there is only one buyer outside the European Union – the United States.

Washington wants to wrest Ukraine from the peaceful context of interstate relations by keeping it in a state of tension and conflict with Russia. However, this goal is fully shared by Kiev, which entertains illusions that America really cares much about Ukraine’s economic wellbeing. In fact, the US is more interested in the European market than it is in Ukraine’s, so the former Soviet republic is only instrumental in Washington’s ongoing war with Brussels for the EU market.

Turkey is a NATO member playing a significant role in the Middle East and serving a buffer between Europe and refugees. Ankara has a real sway over the political processes unfolding both in Europe and the Middle East. This allows President Recep Tayyip Erdogan to play his game defending his country’s interests.

By contrast, Ukraine, which neither has an own game to play, nor any political weight to lean on, just can’t afford antagonizing Turkey, which, otherwise, might stop reckoning with Kiev’s interests in the Black Sea region. Meanwhile, as Russia’s President Vladimir Putin said, the gas transit via Ukraine will continue only if its economic feasibility is fully proved by Kiev.

First published in our partner International Affairs

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