Of-late the monotonous oscillation of oil prices is making it difficult for writers and analysts to get any sense out of this whimsical trend. After the Vienna Oil deal in November 2016 and after the 21st January meeting between oil producers the oil prices have been moving up and down in the $50-$60 band.
Ever since the Kingdom of Saudi Arabia refused to play its part as a swing producer (in 2014) the oil markets turned topsy-turvy. What followed was an influx of extra oil which created a glut so huge that it is now proving almost difficult to flush it out. Despite 91% compliance from the oil producers vis-à-vis the oil deal the prices seems to be stuck in the aforesaid band. As noted many times the issue is that of the US Shale producers. This represents a perfect Catch-22 situation where the investors may find themselves dizzy by the vicious circle triggered whenever there is a cut in production. A production cut is all what everyone wants, yes, but after the production cut, due a mix of slight change in fundamentals and a huge alteration in speculations and sentiments, the oil prices start to move up. This is also a good omen. The next event, however, thwarts the rising hopes and prices as the US Shale producers-most of whom had stopped producing given the difference of cost of production- get back at the oil fields. When this happens, the supply-supposed to go down by the cut in production- once again starts to swell. And we, after making merry go rounds once again stand where we started from. Now-a-days, this is exactly what is happening: The oil prices every now and then rally up as the oil producers are fully complying with the November deal, but the Shale producers getting back at the derricks is a cause of continuous consternation. Last Friday Baker & Hughes reported a 17 rig increase in US oil rigs, making the total number at 583. Oil rigs have increased by 106 after the November oil deal. Many of the oil companies are back at their projects. BP signed a flurry of oil exploration deals and expects to increase the oil production, almost 800,000 bpd by the end of decade.
What, then, is the panacea? I am afraid there is none. The markets have to wait. Patience is the key here. If the OPEC and NOPEC producers remain true to the Vienna Deal-which is only for the first six months of the current year- it can still take a year or half for the oil glut to drain gradually. But a very relevant condition for this drainage to eventuate is Demand and it looks waning. China’s economy is not very promising. This price cap may, in future, effect the compliance of the oil producers as they do not see any potential effect of the deal.
There is a possibility: As Mr. Fereydoun, head of Vienna Energy Centre, said to me few weeks back that the OPEC should now try to bring the US shale producers on the table as well. But given their reduction in cost of production due to greater adaptability by the virtue of better technologies, it seems hardly possible. But in the long run, if US exercises far-sightedness, its willingness to cooperate with OPEC and other producers like Russia will only help create a better and stable oil market. The need for which is dire!
The Role of Sovereign Wealth Funds in the Age of Green Energy
The world’s shift
away from carbon-based energies in favour of renewable or green energy
threatens to turn fossil-fuel-rich economies into “stranded nations” unable to
realize the economic value of their carbon wealth. The world’s sovereign wealth
funds, which collectively own $8 trillion in assets but currently invest just
0.19% of this figure in green energy, have a powerful role to play in helping
governments implement policies and investments to prepare for this transition.
These are the findings of a World Economic Forum white paper, Thinking
Strategically: Using Resource Revenues to Invest in a Sustainable Future,
According to the report, economies where the value of the carbon wealth outweighs the value of human capital or financial assets are particularly vulnerable to the energy transition. This applies to more than a dozen countries that remain heavily dependent on fossil-fuel resources. The report goes further by saying that economies that have over 10% of their total wealth based in carbon assets could become “stranded” and must act now to develop the human capital and economic diversification to thrive in a world that is less dependent on carbon energies.
Adding urgency, the
report points out, is that the shift to green energy is likely to occur sooner
than expected. Estimates predict between two-thirds to three-fourths of energy
will come from green sources by 2050. These estimates are much higher than a
decade ago, when just 15% of energy was expected to be green by 2050. This
means countries with high carbon wealth may have even less time than
anticipated to avoid being stranded as the pace of the green energy shift
continues to beat predictions.
While some fossil-fuel-dependent countries have already begun to diversify their economies and increase investment in human capital in preparation for impending energy changes, such changes are rarely adequate for the size and speed of these economic shifts, the report finds.
Sovereign wealth funds, as some of the largest investors in the world, have been an extraordinarily powerful tool for stabilizing resource-rich economies and securing wealth for future generations. By closely aligning their private investment acumen with public policy under a “strategic mandate”, these funds can deliver even more value to society. This can be achieved by adopting a “strategic investment fund” model whereby funds act as an additional tool for policy-makers to support local development goals.
“To protect their economic futures, countries whose economies rely on fossil fuels need to prepare now for the impending global shift away from these resources,” said Maha Eltobgy, Head of Shaping the Future of Long-Term Investing, Infrastructure and Development at the World Economic Forum. “The resource dependent, fossil-fuel-rich nations that have diligently built large sovereign wealth funds to manage the economic challenges of the Age of Oil must now consider how to use this vast wealth to prepare for the Age of Green Energy.”
The potential for sovereign wealth funds to play a transformational role in driving diversification and sustainable growth is underpinned by the number of new funds that have come into existence in recent times. In 2000, there were just 26 sovereign wealth funds in the world; 10 years later, 57 existed; and today, more than 75 sovereign wealth funds collectively hold over $8 trillion in total assets. Only one-third of these funds operate under a strategic mandate, yet the report identifies 41 funds from commodity producers with nearly $4 trillion in assets that could do so.
As the impacts of
climate change, demographic shifts and the transition towards green energy
become more acute, economic policy-makers should more aggressively apply the
strategic investment model to address these challenges head-on. “Increasing the
number ‘strategic investment funds’ is the first step to ensuring economies are
prepared for the impending global energy shift,” Eltobgy said.
“Rather than waiting for the economic and social impacts, countries must use the investment acumen and wealth they have accumulated to diversify their economies,” said Patrick Schena, Co-Head of the Sovereign Wealth Fund Initiative at the Fletcher School of Law and Diplomacy at Tufts University. “While domestic investment is difficult, and political and financial risk must be diligently managed, fossil-fuel economies must use every available tool to sufficiently respond to the impending global economic shift.”
With this change, the authors say, sovereign funds can be more closely integrated with public policy, giving them the ability to actually drive, rather than react, to the global energy transition. Their direct investing approach can create wealth rather than merely manage it, bringing new sources of prosperity while preparing for the challenges of tomorrow.
Solar powering sustainable development in Asia and the Pacific
The way energy is produced, distributed and used causes environmental damage – most visibly air pollution – that in turn harms people’s health. It is also one of the major drivers of climate change. Recognising this, countries are urgently looking to shift to more sustainable energy, but the transition has so far been slow. Put simply, our future depends on our ability to decarbonize our economies by the end of the century. This was recognised by the Paris climate agreement in 2015 and is central to the United Nations 2030 Agenda for Sustainable Development. Sustainable Development Goal 7 (SDG 7) sets countries the twin challenge of meeting new benchmarks in renewable energy and energy efficiency, while ensuring universal access to modern energy.
In Asia and the Pacific, progress towards SDG 7 needs to be accelerated. While 99 percent of the population is expected to have access to electricity by 2030, access to clean cooking fuels will reach only 70 percent of our region’s population, leaving far too many people exposed to the deadly impacts of indoor air pollution. Energy intensity – a measure of our economies’ energy efficiency – is set to decrease but will fall short of 2030 Agenda targets if no further action is taken. At the same time, the share of renewable energy in total energy consumption is only expected to reach 14 percent, well under the 22 percent share required.
Solar energy has a major part to play in closing these gaps. It is an opportunity we must seize for low carbon development, energy security and poverty alleviation. Because solar power can bring clean, emissions-free and evenly distributed energy. This is particularly relevant to Asia and the Pacific, where developing countries have abundant solar energy resources. Solar energy technology increasingly offers a cost-effective alternative to extending networks to outlying and often challenging geographical locations. A potential which has been captured by the Indian leadership’s ambition for “one world, one sun, one grid”.
Governments, the private sector and investors are now thinking over the horizon, planning for a more sustainable and low carbon future. The cost of renewable technologies, very much including solar power has dropped rapidly, bringing these solutions within reach. India now has the newest and cheapest solar technology of anywhere in the world. Mini-grids or standalone solar home systems can be deployed quickly and help reduce greenhouse gas emissions. Due in part to unsustainable subsidies and in part to inertia, coal fired electricity is set to continue to grow in the short to medium term, but wind and solar must play a much more substantial role sooner rather than later for us to have a chance of meeting the SDGs or achieving the aspirations of the Paris Agreement.
India is supporting this solar revolution. By founding and hosting the International Solar Alliance, it has moved decisively to increasing access to solar finance, lowering the cost of technology and building the solar skills needed among engineers, planners and administrators. But it has also set an unparalleled deployment target for solar power generation. The National Solar Mission aims to reach 100 GW of solar power generation by 2022 and has spurred intense activity in solar development across India which has captured the imagination of the region.
At the Economic and Social Commission for Asia and the Pacific, the development arm of the United Nations in the region, we are clear solar energy can boost renewables’ share in our power mix, increase energy efficiency and bring electricity to remote parts of the region. Our research is focused on overcoming the challenges of achieving these three elements of SDG7. Upon request, we support countries maximize the potential to adopt sustainable energy through technical support and capacity building, including through the development of energy transition roadmaps. Work is also underway to develop a develop a regional masterplan on sustainable energy connectivity, vital to make the most of solar power by supporting the growth of cross border power systems.
A core purpose of sustainable development is to ensure we leave future generations a world which affords them the same opportunities we have enjoyed. This is within our grasp if we work across borders to promote solar energy throughout Asia and the Pacific. India has a major role to play. Its experience gives us a historical opportunity to shape best practices in solar energy for our region and reduce carbon emissions. This is experience we cannot afford to waste.
Phasing Out Coal and Other Transitions: Lessons From Europe
Climate change reports are seldom sanguine. Carbon dioxide, the principal culprit, is at record levels, about twice the preindustrial value and a third higher than even 1950. Without abatement it could rise to a thousand parts per million in a self-reinforcing loop spiraling into an irredeemable ecological disaster. The UN IPCC report warns of a 12-year window for action.
Contrasting President Trump’s boast of US energy independence based on coal and other fossil fuels in his SOTU address on Tuesday, two Democrats, Senator Ed Markey and Rep. Alexandria Ocasio Cortez, have introduced a 10-page Green New Deal resolution to achieve carbon neutrality within ten years. While this target may not be technically feasible, it is an admirable start to the discussion. At the same time, the Germans are attacking the problem forcefully as demonstrated by their new coal commission report issued last week.
In November 2016, the German Federal Government adopted its Climate Action Plan 2050. It outlined CO2 reduction targets in energy, industry, buildings, transport and agriculture. Energy is the most polluting; its emissions total the sum of all the others except industry and energiewende (energy change) was a key aspect of the plan.
So even as our atavistic president is promoting coal, Germany, the EU economic powerhouse, announced it is planning to phase out all coal-fired power stations by 2038. As outlined in the November 2016 plan, a commission comprising delegates from industry, trade unions, civil society including environmental NGOs and policy makers was appointed in 2018 to examine the issue and prescribe an equitable solution. After eight months of negotiations and discussions, concluding with a final 21-hour marathon session, it has produced a dense 336-page document. Only one member out of 28 cast an opposing vote, and Greenpeace added a dissenting option as it wants the process to begin immediately.
Such an objective was a special challenge because of Germany’s long industrial history coupled with coal mining. The plan shuts down the last coal-burning power station by 2038 as the final step in the pathway outlined — an ambitious alternative is to exit by 2035 if conditions permit. Total capacity of coal-using stations in Germany is about 45 gigawatts, and the report sets out a four-year initial goal of 12.5 gigawatts to be switched-off i.e. about two dozen of the larger 500+ megawatt units by 2022. Progressively, eight years later (by 2030) another 24 gigawatts will have been phased out leaving just 9 gigawatts to be eliminated by 2035 if possible but definitely by 2038 at the latest.
It is a demanding plan for coal has been deeply embedded with German industry. To ease the pain for tens of thousands of workers and their families, the plan allocates federal funding to deal with its broad ramifications i.e. job loss and displacement. An adjustment fund will be used for those aged 58 and over to compensate pension deficits. Funds are also directed towards retraining for younger workers and for education programs designed to broaden skills.
It includes 40 billion euros to develop alternative industry in coal mining states plus money not directly project-related. In addition further investments in infrastructure and a special funding program for transport adding up to 1.5 billion euros per year are allocated in the federal budget until 2021.
The change-over will raise electricity prices, so a 2 billion euro per year compensation program for users, both private individuals and industrial, will continue until 2030. This is designed to relieve the burden on families, and to maintain industrial competitiveness.
Germany is not alone. The EU has issued an analysis of accelerated coal phase-out by 2030. The Netherlands has its own energiesprong (energy leap) focused on energy transition and energy neutral buildings, meaning that the buildings generate enough energy through solar panels or other means to pay for the energy deficit from their construction and use. It can now clad entire apartment blocks in insulation and solar panels, and is reputed to be so efficient that some buildings are producing more renewable energy than consumed. This expertise is also being utilized in the UK.
Given the forests, the Norwegians have tried something different. They have built the world’s tallest wooden skyscraper, the Mjøs Tower, 85 meters high in Brumunddal. Its wood sourced from forests within a 50 km radius uses one-sixth the energy of steel and of course much less, if at all, emission of greenhouse gases.
By the end of Germany’s enormous sector-wide endeavor, it expects to reduce CO2 emissions to roughly half through 2030 and 80-95 percent by 2050. The comprehensive and complete nature of the program
could serve as a blueprint here in the US. Thus the obvious question: If Germany with a far larger proportion of its workforce associated with coal can do it, why can’t the US?
The Role of Sovereign Wealth Funds in the Age of Green Energy
The world’s shift away from carbon-based energies in favour of renewable or green energy threatens to turn fossil-fuel-rich economies into...
Gender equality cannot wait in Asia and the Pacific
Equal rights have been demanded and promised for generations, but last year a shift occurred in the women’s movement. Across...
Jaeger Lecoultre Presents A New Expression Of The Atmos
Inside its crystal clear cabinet made of anti-reflective glass, the Atmos Transparente clock displays a strikingly sober new face. From...
South Asian Geopolitics: Saudi Arabia: 1 Iran: 0?
It may be reading tea leaves but analysis of the walk-up to Saudi crown prince Mohammed bin Salman’s visit and...
Complicated puzzle in the UK
Britain’s withdrawal from the European Union has become a major riddle in the country. Many English citizens do not have...
The Indo-Pak Conundrum: Victims to their Own Narratives
As tensions between nuclear armed India and Pakistan once again escalate in the wake of the devastating attack on Indian...
Côte d’Ivoire: The Economy is Still Dynamic, but not Inclusive
For the seventh consecutive year, economic growth in Côte d’Ivoire was projected to exceed 7% and reach 7.4% in 2018,...
Terrorism3 days ago
Kashmir puts Chinese counterterrorism on the defensive
Europe2 days ago
Montenegrin political earthquake
Americas3 days ago
US not to tolerate independent countries
Style3 days ago
Three New Breitling Watches Commemorate an Aviation Legend
Defense2 days ago
A lie about an allegation of the IRGC’s support for terrorism
Defense1 day ago
Beating The Drums Of War Against Iran And Pakistan
Urban Development2 days ago
Mali: Bamako Needs Urgent Actions to Become an Engine of Growth and Service Delivery
Economy2 days ago
Closing the Loop: Meet the Pioneers Turning our Global Economy Circular