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Relevance of Hydrocarbon sector in changing energy scenario

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] T [/yt_dropcap] he British Royal Navy was the largest and the most technically advanced naval force in the early half of the 20th century. It was the era of coal and oil has just started flowing in the markets. As coal was more readily available in the British Isles in Cardiff and Wales, most of the Royal Navy was coal fired. However, the advantages of a Navy fuelled by oil were beginning to be seen.

Oil-Powered Ships could carry more fuel, were faster and could cover a larger patrol area. More so, the German Navy was fast catching up, both in quantity and quality. Among the debaters of the coal and oil camp was Winston Churchill, the First Sea Lord of Admiralty and a supporter of Oil. He argued strongly for the Introduction of Oil-powered engines and a move towards an Oil Navy. His detractors argued that there was little to no oil to be found with the British Isles. Among his supporters for the transition, a major concern was that the only source of oil for the Royal Navy was in Persia, separated from the British Fleet Home Bases by a thousand miles. In event of a looming war, it would become a logistical nightmare to supply the ships with oil, safely and securely. Churchill, however, dismissed all these concerns. Ships powered by Coal were being grossly outperformed in Fleet Readiness Exercises. An American Training Fleet powered by oil has just come out on top of a powerful Coal-Fired British Fleet in a training exercise, embarrassing the British Admiralty. The writing on the wall was clear. The future belonged to faster, more nimble ships which could only be possible with oil engines. But how could the mighty British Fleet rely on a single source of oil, that too thousands of miles away. Could the safety and certainty of oil be guaranteed? To this he said, “Safety and certainty in oil lie in variety and variety alone.” Diversification of Energy sources was the only way out of the dilemma. And those words hold true, even to this date.

Today, is Energy a luxury or a necessity?

India, a home to over 1.2 Billion People and counting, is one of the world’s largest economies and arguably the world’s fastest growing economy. Every year, a sizable chunk of the Indian Population is pulled up from the Below Poverty Line and becomes part of the world’s largest Middle Class Population. Incomes are rising, the economy is growing, workers migrate to the cities in search of work, shops open to cater to increasing number of customers, suburbs become the part of the cities and the Indian Juggernaut lumbers along. The Economists and the Financial Markets look towards India as one the drivers of the Global Economies and the undisputed hub of the Global Services Industry. But in the all the light, lays a gaping hole of darkness, something which has the potential to snuff out all the light and put an end to the Indian/global Growth. And that darkness is akin to dilemma that the Royal Navy faced over a century ago. To fuel the temples of Economic Growth, we need Energy and lots and lots of it. To build roads, provide electricity to the ever growing population, to pump clean water for drinking, to move commerce and food stuff, heck we even need energy to create fertilizers and irrigate fields to grow food. Energy has occupied the most important place in our lives. Energy is no longer a luxury but a necessity of Human Life now. A life with energy is impossible to imagine now.

The Dilemma of Energy Supply

While the demand for Energy continues to grow, Governments and Public Utilities struggle to find ways to cope with the supply-demand equation. Also, with the coming of the 21st century and the horrors it is foretold to bring if we do not become caring for the environment, there is a need to come up with cleaner and greener sources of Energy. India, like most other counties in the world, faces the same issues. How to supply a growing Population with the means for a bountiful living balancing it with supplying the adequate means for the economy to grow while having a next to no impact on the environment? The dilemma of the policy makers is palpable. James Schlesinger, who served as the first US energy secretary, once quipped that Americans have only two ways of thinking about energy: “complacency and panic.” We’ll agree with the sentiment and substitute the word “Americans” for “people” because very few people anywhere in the world think much about where their energy comes from? And the gargantuan swings in energy markets over the past couple of years illustrate Dr. Schlesinger’s basic point. Our foremost challenge today is the need to balance energy security, employment and economic growth with the issue of climate change. While it can be possible, but not without first acknowledging that the real problem lies above ground rather than beneath it. Getting the Policy mix right is the surest way to avoid the traps of complacency and panic. So what underpins energy security? What to do to ensure that the Energy always flows? Is there the need for an out of the box thinking? Maybe. But the solution remains the same as were the words of Churchill; only this time it would be “Safety and certainty of Energy Supply lie in variety and variety alone.”

Safety and certainty of Energy Supply lie in variety and variety alone

Reliable and affordable supplies of energy have laid the foundation for the world’s extraordinary economic progress to date. Coal fuelled power plants provide electricity for factories and mills. The patriotic fervor among the coal miners in the United States was very strong as they were right to believe that the coal mined by them made Steel and that if the Steel failed, the entire country would fail. Oil made faster travel and commerce possible. Famines and food panics have been gradually reduced as markets became interconnected and it become possible to buy and sell and move goods fast. Natural Gas has made cooking a delightful experience compared to the soot filed kitchens of the past. However, these bountiful sources were very taken for granted throughout much of the 20th century. But with the coming of the 21st century is that energy security and climate change have become the defining issues. They are most important components in a complex matrix with strategic, economic and environmental dimensions.

We need to look towards the future to find out what that lays ahead. BP’s projections suggest we’ll need around 45% more energy in 2030 than we what we can consume today – and double that by 2050. That’s the rough equivalent of adding today’s biggest energy user, United States nearly twice over to world energy demand, and meeting it will require an annual investment of more than $1 trillion a year, every year till 2050. The question is so how can we deliver on that demand sustainably? Let’s be clear – there are no silver bullets here to take this big bad wolf.

Towards Energy Security

To address it, we must have clarity of thought about where we are, where we want to go and which way to go? There is a need to set out practical pathways which can lead us towards the dreamed destination. And most of all, we need a clear regulatory framework to enable businesses to invest with the confidence in building a lower carbon/ carbon free future. Hydrocarbons have, are and will continue to play the most important role in energy security. Say what the environmentalists and the climate scientists; a future full of energy without hydrocarbon is unimaginable, at least with current available technology and investment base. Despite the entire hullabaloo about renewable, they are unlikely to account for much of the energy basket. Unlike what the proponents of the renewable energy who believe the energy base transition would be as under:

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with renewable contributing a significant higher share year on year. As stated, the share of renewable energy will certainly increase, but we have to be realistic about how much it can actually contribute. All of the world’s wind, solar, wave, tide and geothermal power only accounts for around 1% of total consumption. Add up hydropower and the share goes up another 12%. While hydroelectricity can contribute a bigger share of the energy pie, the application is limited   by massive   population  displacements   and   the   ecological   impact   on   the   local communities. Projects like the Itaipu Dam (Paraguay) and the Three Gorges Dam (PR China) are becoming fewer to plan and execute and several other projects all across the world are struck in various different stages of construction and the Litigation. Governments are funding newer projects in renewable development and research, although taking at a break neck speed, has yet to come up with a game changer solution, forcing corporate to rely on current generation technology for testing and small scale projects. Given the practical challenges of scaling up such technologies, the International Energy Agency doesn’t see them accounting for much more than 5% of consumption in 2030(excluding Hydropower), even with all the aggressive policy support and governmental funding. Nuclear energy and biofuels will also play a part, and by 2030 carbon capture technology could be deployed at scale in Coal Fired power plants. But there will still be a major role for hydrocarbons, primarily Natural Gas. Indeed, the IEA analysis indicates that even in a low carbon scenario predicated on keeping the atmospheric concentration of CO2 to less than 450ppm, hydrocarbons will remain dominant. Hence, Hydrocarbons, more so, Natural Gas are the most reliable fuel for the future.

Relevance of the Hydrocarbon Sector

So we need hydrocarbons and lots and lots of it, that’s clear. The good news is that we have enough reserves of crude oil – and even more of natural gas – and these reserve estimates are rising as we continuously developing newer ways of unlocking both conventional and unconventional resources. Thereby the cornerstone of ensuring the future’s energy security is the creation of a diverse supply – diverse in the forms it can take and diverse in the places it can come from. The hydrocarbon sector must make investments in both low carbon energy business (the projects for Carbon Capture and Sequestration) and the carbon intensive programs (the production from Heavy Oils and Tar Sands) and mate them together. It’s not so much about not emitting the carbon into the system, its more about minimizing the carbon footprint of the energy. Both programs can be a part of a broad and sustainable energy basket mix that embraces oil, gas, coal and renewable, producing and using them all with innovation and efficiency.

However, the building of such a future demands action both from hydrocarbon sector and from Government. The Hydrocarbon Sector can provide the building blocks and tools – but there is a need for them to work within the architecture provided by governments. This appears to be the most logical way in which the current energy security architecture can – and it should – be strengthened.

Challenges Ahead

There is however a set of unique challenges ahead. First, with continuously increasing pressure on the supply side, it’s important to develop energy resources as efficiently as possible. For the Government, this means opening up areas that had previously been closed for exploration and allowing competitive bidding for operations. Offering access permits to a group of potential operators encourages them to come up with the most efficient solutions and often involves partnerships that develop new and innovative combinations of skills, lest they try it going in alone and losing it all. The key to producing unconventional and stranded conventional resources efficiently lies in application of advanced technology. The prime example of this thought school is the US revolution in shale gas over the past decade that has been made possible thanks to new drilling and fracturing technology. This is a real game-changer when it comes to energy security.

The second area in which policy is critical is in addressing climate change. The hydrocarbon sector along with the government can play a major role, arguably via creating a price for carbon trading through conventional market mechanisms. Needless to stress upon but only an open competition will encourage the most efficient ways of cutting emissions. The Hydrocarbon sector must factor a carbon cost into both, their investment choices and their engineering design of new projects. This is only way of ensuring that their investments are competitive not only in today’s world, but also in a future where carbon has a more robust price.

The question of Climate Change?

There are a lot of detractors and proponents of the role of hydrocarbons in the climate change but the fact remains that the world is going to use a lot more energy in the coming decades and there is a need to take urgent action to mitigate the effects of such an increase. All across the globe, millions of people are leaving poverty behind and enjoying a much better standard of living. While there are some clear signs that governments around the world are sensitive to this and are beginning to do something about it, the process remains disjointed and sometimes even frustrating for the Hydrocarbon Sector to do something positive in this regard. The key to real progress being made is alignment, rather than simple agreements – moving in the same direction, may or may not necessarily in lock-step. If the government provides a clear, stable and sustainable framework for investment, it will start to flow. But if they don’t, they run the risk that spare capacity will dwindle – and ‘complacency’ will give way to ‘panic.’

The quickest way to ensure a low carbon fuel for the future while ensuring minimum investment and with the existing infrastructure and technology is Natural Gas. Gas offers the greatest potential to achieve the largest CO2 reductions – at the lowest possible cost and in the shortest time duration all this, by using technology that is available today. It’s easily the cleanest burning fossil fuel – around 50 percent cleaner than coal. It’s very efficient, and combined-cycle turbines fuelled by natural gas are both quicker and relatively cheaper to build. More so, a lots of it is available and sometimes, more readily so.

Conclusion

The creation of a low-carbon economy will be far from easy and over-time, will require the whole-scale re-engineering of the global economy. It will demand a very significant investment by industry, which in turn requires a clear regulatory regime. There is a need to ensure that our children and grandchildren are not left with the unknown hazards of climate change and can keep their lights on in the future. If both these challenges can be met, it is only then has the Hydrocarbon Sector played a crucial role in this changing energy scenario.

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Energy

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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