Authors: Ekaterina Klimenko & Camilla T.N. Sørensen
[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] T [/yt_dropcap]he Arctic is estimated to contain 30 per cent of the world’s undiscovered oil and gas reserves. Climate change has accelerated the melting of the Arctic ice, making these resources more available. This backgrounder looks at the status of Chinese–Russian energy cooperation in the Arctic.
In the past decade, Russia has been actively developing Arctic resources and shipping routes, while boosting its military presence in the region. While Russia has primarily worked with European countries to develop its energy resources, including in the Arctic, a number of factors have led Russia to reconsider and look even more to Asia for potential investors and technology partners, and as a key consumer market. China is increasingly highlighted as an important partner for Russia in developing the Russian Arctic.
China has increased its focus on and engagement in the Arctic over the past decade. From a Chinese perspective, cooperation with Russia on Arctic resources and shipping routes also helps facilitate a greater Chinese role and influence in the region and gradually gain respect and acceptance for China as a legitimate Arctic stakeholder.
Interests in the Arctic
Russia’s Arctic strategy identifies the following core national interests: (a) use of the Arctic Zone of the Russian Federation as a strategic resource base; (b) safe-guarding the Arctic as a zone of peace and cooperation; and (c) use of the Northern Sea Route as a national integrated transport-communication system for Russia in the Arctic. Among these goals, the development of offshore and onshore oil and gas resources is a top priority.
The Russian economy is largely dependent on revenues from oil and gas. At least 50 per cent of federal budget revenue is generated from exports of energy resources. Most of Russia’s oil and gas production is concentrated in the traditional areas of western Siberia. However, their depletion over the past decade means that the geography of production has been shifting to new regions to the north of western Siberia, including the Yamal Peninsula and the Arctic seas.
To date, China’s focus and activities in the Arctic region have been primarily concentrated on its scientific interests, particularly those that relate to how the melting ice and changing climate in the Arctic will affect China. However, over the past decade, China’s activities have begun to concentrate more on economic interests and concerns about securing and diversifying China’s supply of energy resources and minerals. China has also developed a growing interest in the Arctic shipping routes, which could provide it with alternatives to the longer and strategically vulnerable routes currently in use. Furthermore, China is interested in securing a voice in the evolving Arctic governance regime, which is related to its importance and potential implications for wider global and regional governance.
As a result, China seeks to diversify and strengthen its bilateral relations with all the Arctic states by establishing stronger diplomatic ties, scientific cooperation, and economic partnerships.
Drivers of Chinese–Russian energy cooperation in the Arctic
Major shifts in world energy markets have significantly affected the development of Russia’s Arctic shelf resources and the expansion of the current onshore resources of the Yamal Peninsula. At least three key factors have led to a significant overproduction of natural gas in Russia and hence delayed the development of gas resources on the Arctic shelf: (a) EU plans to prioritize the diversification of gas suppliers in the European market; (b) difficult relations with Ukraine, which is the third largest consumer of Russian gas; and (c) shale gas revolution has also resulted in the loss of other potential markets.
In relation to oil, estimates suggest that the fall in oil prices has made the development of the Arctic shelf oilfields unprofitable. This will continue to be the case while the price of oil stays below USD $100 per barrel. However, the decisive factor in the need for Russian companies to diversify their partnerships has been the geopolitical tensions between Russia and the West in the wake of the crisis in Ukraine.
The USA and the EU introduced sanctions against Russia in 2014 after Russia’s annexation of Crimea. Among these sanctions, the third package, which was introduced in July 2014, has had significant implications because it concerns the transfer of technologies. The USA and EU sanctions include a ban on the transfer of equipment and technology for deep drilling below 150–152 metres, as well as on exploration and development of Arctic shelf shale oil reserves.
These sanctions forced ExxonMobil, Statoil and other Western companies to suspend their cooperation with Russia in the Arctic. The third package of sanctions also introduced strict financial restrictions, applied to loans of longer than 30 days. The largest Russian banks and corporations in Russia, such as Rosneft, Transneft, Gazpromneft, Gazprom, Novatek, Lukoil and Surgutneftegaz, remain under sanctions. This has made it difficult to seek financing for Arctic projects in Western financial markets.
Seen from Beijing, Russia, as the biggest Arctic state, stands as an important gatekeeper and ‘necessary partner’ for non-Arctic states such as China. China knows that in many ways it is dependent on Russia—for example, for Russian goodwill and support—if China is to increase its activities and consolidate its role as a legitimate stakeholder in the region. Consequently, in a Chinese analysis, there is no way to avoid dealing and getting along with Russia in the Arctic.
Despite the lower growth rate of the Chinese economy in recent years, its demand for energy and resources continues to grow and its state-owned enterprises are continuously encouraged to identify and establish new areas for exploration and extraction. China sees the Russian Far East, Siberia and the Russian Arctic as increasingly important due to their potential in relation to energy resources, export markets and new shipping and trading routes. It also sees these regions as recipients of and partners in Chinese-led infrastructure and other development projects.
These activities have synergies with China’s high-profile ‘One Belt, One Road’ initiative, through which China is seeking access to vital European markets through Central Asia and Russia. China also seeks to take advantage of current Russian geostrategic and geo-economic vulnerabilities and of Russia’s need for China as a partner to gradually strengthen its presence and relationships in the Arctic.
Concrete steps towards Chinese-Russian cooperation on the development of the Arctic shelf
In February and March 2013, during a round of oil delivery negotiations, Rosneft and the China National Petroleum Corporation (CNPC) discussed opportunities for cooperation on shelf projects in the Arctic Barents Sea and Pechora Sea, with a particular focus on the Zapadno-Prinovozemelsky, Yuzhno Russky, Medyskoe Sea and Varandeyskoe Sea deposits. Among these, the Medyskoe Sea and Varandeyskoe Sea are the most promising, containing an estimated 3.9 million and 5.5 million tonnes of oil per year, respectively. Although the head of Rosneft, Igor Sechin, confirmed a commitment to work with China on the Arctic shelf early in 2014, however, no official confirmation or details have yet to emerge.
In late 2015, Russia’s Deputy Energy Minister reiterated that Rosneft was still ‘negotiating’ and ‘discussing’ its participation in Arctic shelf energy and extraction projects with China. The relative lack of progress over nearly two years could indicate that China is either reluctant to invest or trying to get a better deal. Moreover, the fact that China did not invest in the Vankor deposit in East Siberia and did not buy Rosneft’s shares could demonstrate that its interest in the Russian upstream has decreased, or that it cannot accept Rosneft’s conditions. It could also be argued that the Russian oil and gas delivery deals that China secured in 2013 and 2014 have reduced its overall interest in the Russian upstream, including in the Arctic. Nonetheless, analysts continue to claim that China wants not just to be part of, but to have a managerial stake, in these Arctic projects.
Another unanswered question is the extent to which Chinese companies can replace the work of Western partners on the Arctic shelf, particularly their technological assistance. Despite such concerns, Russia and China have increased their technological cooperation in the oil and gas sectors since the imposition of sanctions. In September 2015, for example, China Oilfield Services Limited (COSL) signed deals with Rosneft and Norwegian Statoil to drill two exploration wells in the Sea of Okhotsk, which has similar conditions to the Arctic. Igor Sechin noted that the agreements unlocked new potential for cooperation on oil and gas resource exploration by industry leaders in Russia, Norway and China. The extent to which this potential will affect the Arctic remains to be seen.
Emerging Chinese-Russian cooperation on the Yamal Peninsula
If offshore projects remain a question for the future, onshore cooperation in the Arctic is already advancing. In February 2013, the head of Novatek visited China as part of an official Russian delegation to discuss opportunities for cooperation on its main Arctic project, Yamal liquefied natural gas (LNG). As a result of this visit and several subsequent rounds of negotiations, on 5 September 2013, Novatek and CNPC signed a contract for the sale of a 20 per cent stake in Yamal LNG. The agreement includes a long-term contract for the supply of not less than 3 million tonnes of LNG per year to China, which is 18 per cent of total capacity. The deal was approved by the Russian Government in November 2013 and signed in January 2014.
Following the breakout of the crisis in Ukraine, Novatek became the target of sanctions and Yamal LNG faced further financial difficulties. Novatek was forced to seek further engagement with foreign partners and China was among the few remaining alternatives. In September 2015, Novatek sold the Silk Road Fund, a Chinese sovereign fund, a further 9.9 per cent of Yamal LNG for approximately EUR €1.09 billion. In December 2015, as part of the deal, Novatek received a loan from the Silk Road Fund of EUR €730 million for a period of 15 years to finance the project.
As a follow-up to these advances, on 29 April 2016 Yamal LNG announced the signing of agreements with the Export-Import Bank of China and the China Development Bank on two 15-year credit facilities of a total amount of EUR €9.3 billion to finance the project. China will therefore provide up to 60 per cent of the necessary capital to implement the project.
Despite this impressive track record of cooperation on Yamal LNG, two problems reveal the limits of possible Chinese-Russian energy cooperation. First, Novatek had serious difficulties in securing Chinese financing for the project. The deal was only concluded after numerous delays and negotiations. Second, China also received huge benefits from the deal, since up to 80 per cent of the equipment for Yamal LNG will be produced in Chinese shipyards.
This shows that, despite China’s interest in energy projects in the Arctic and Russia’s eagerness to obtain Chinese partnerships, there are a lot of difficulties ahead. Chinese companies will work on projects that they are interested in only under conditions that they find acceptable. Thus, Russia will have to offer good conditions to attract the Chinese and develop Chinese–Russian energy cooperation.
Despite the stream of positive adjectives flowing from both Russia and China in recent months about partnership and friendship, cooperation in the Arctic has not progressed much. Except for cooperation on the Yamal Peninsula, Russian and Chinese companies have not yet found further mutual ground for energy cooperation in the Arctic.
On the one hand, Russian companies need and welcome Chinese investments and loans; on the other hand, they are not entirely comfortable allowing Chinese companies to play too big a role in Russian energy projects, including those in the Arctic. Chinese companies, in contrast, are in a very strong position at the moment and would not agree to anything less than a significant controlling and management role.
As a result, there is a degree of disappointment in Russia that energy cooperation with China has not developed as anticipated and thus has not mitigated the crisis with the West to the desired degree. Seen from Russia, China has taken advantage of the situation, for example to extract especially favourable terms on energy deals and to insist on high interest rates on major Chinese loans. That is, China has not shown the expected goodwill, which is why using the Chinese–Russian partnership as leverage against the West has not worked.
This topical backgrounder is based on the upcoming policy paper ‘Emerging Chinese–Russian Cooperation in the Arctic: Possibilities and Constraints’ by Camilla T. N. Sørensen and Ekaterina Klimenko. First published at SIPRI.org
(*) Camilla T. N. Sørensen is Assistant Professor at the Department of Political Science at the University of Copenhagen.
Global energy demand grew by 2.1% in 2017- carbon emissions rose for the first time since 2014
Global energy demand rose by 2.1% in 2017, more than twice the previous year’s rate, boosted by strong global economic growth, with oil, gas and coal meeting most of the increase in demand for energy, and renewables seeing impressive gains.
Over 70% of global energy demand growth was met by oil, natural gas and coal, while renewables accounted for almost all of the rest. Improvements in energy efficiency slowed down last year. As a result of these trends, global energy-related carbon dioxide emissions increased by 1.4% in 2017, after three years of remaining flat.
But carbon emissions, which reached a historical high of 32.5 gigatonnes in 2017, did not rise everywhere. While most major economies saw a rise, others – the United States, the United Kingdom, Mexico and Japan – experienced declines. The biggest drop in emissions came from the United States, driven by higher renewables deployment.
These findings are part of the International Energy Agency’s newest resource – the Global Energy and CO2 Status Report, 2017 – released online today, which provides an up-to-date snapshot of recent trends and developments across all fuels.
“The robust global economy pushed up energy demand last year, which was mostly met by fossil fuels, while renewables made impressive strides,” said Dr Fatih Birol, the IEA’s Executive Director. “The significant growth in global energy-related carbon dioxide emissions in 2017 tells us that current efforts to combat climate change are far from sufficient. For example, there has been a dramatic slowdown in the rate of improvement in global energy efficiency as policy makers have put less focus in this area.”
Other key findings of the report for 2017 include:
- – Oil demand grew by 1.6%, more than twice the average annual rate seen over the past decade, driven by the transport sector (in particular a growing share of SUVs and trucks in major economies) as well as rising petrochemical demand.
- – Natural gas consumption grew 3%, the most of all fossil fuels, with China alone accounting for nearly a third of this growth, and the buildings and industry sectors contributing to 80% of the increase in global demand.
- – Coal demand rose about 1%, reversing declines over the previous two years, driven by an increase in coal-fired electricity generation mostly in Asia.
- – Renewables had the highest growth rate of any fuel, meeting a quarter of world energy demand growth, as renewables-based electricity generation rose 6.3%, driven by expansion of wind, solar and hydropower.
- – Electricity generation increased by 3.1%, significantly faster than overall energy demand, and India and China together accounting for 70% of the global increase.
- – Energy efficiency improvements slowed significantly, with global energy intensity improving by only 1.7% in 2017 compared with 2.3% on average over the last three years, caused by an apparent slowdown in efficiency policy coverage and stringency and lower energy prices.
- – Fossil fuels accounted for 81% of total energy demand in 2017, a level that has remained stable for more than three decades.
Forum held in Kigali on increasing access to sustainable energy in East Africa
The Sustainable Energy Forum for East Africa took place between 19 and 21 March 2018 in Kigali, Rwanda. Over 400 high-level representatives from government, business, civil society and international organizations came together to discuss how to increase access to sustainable energy in East African countries.
Three days of discussions focused on the actions needed to scale up sustainable energy development in the region.
“There is need to work together with partners and identify key areas for development of the sustainable energy in the region as part of our efforts of fulfilling the pledge made in the 2030 Agenda for Sustainable Development and the associated Sustainable Development Goals’, said James Musoni, Rwanda’s Minister of Infrastructure.
While the various sessions showcased a diverse set of country experiences in sustainable energy, from scaling up access to electricity to clean cooking fuels, there was a general agreement on the need for new policies and enhanced financing for renewable energy sources and energy efficiency worldwide. To meet these goals, a combination of public and private, and domestic and international resources will be required. Engaging all relevant stakeholders is critical to stimulating progress in the energy transition and achieving the global energy goals.
Rachel Kyte, Special Representative to the UN Secretary-General and CEO, Sustainable Energy for All, said: “There is a lot of good happening in East Africa’s energy transition. However, progress is not at the speed or scale we need to ensure that we don’t leave anyone behind. Continued strong political leadership is crucial to achieve energy productivity across economies, accelerate progress on access to electricity and clean fuels for cooking, and to further increase the share of renewable energy in the mix. East Africa has abundant renewable resources and business ingenuity, and can attract financing. With disciplined leadership and greater ambition, it can deliver an energy future for everyone.”
Another topic highlighted by participants was the relationship between energy and gender. There was a general understanding that the different needs for men and women should be taken into account in sustainable energy programmes and policies in order to increase their effectiveness.
Three reports produced by the United Nations Industrial Development Organization (UNIDO) were released in support of the activities conducted at the Forum. The first study reflects on the main barriers to, and achievements of gender equality in the energy sector in the EAC. Another provides an inventory of ongoing and planned initiatives of sustainable city development across the region. The third study examines clean cooking fuels in the EAC.
Tareq Emtairah, Director of Energy, UNIDO, said “it is important to recognize the vast renewable energy potential in the EAC Partner states. Exploiting these locally available renewable energy resources is a great way to address major challenges such as poverty, energy security, industrial development and environment.”
The Sustainable Energy Forum for East Africa was organized by the East African Centre for Renewable Energy and Energy Efficiency (EACREEE) in collaboration with UNIDO, the EAC Secretariat, the Austrian Development Agency (ADA), Sustainable Energy For All (SEforALL), and the Ministry of Infrastructure of the Republic of Rwanda (MININFRA), and is hosted by the Government of Rwanda.
It was the first of a series of events that will take place in 2018 with the aim of increasing progress on Sustainable Development Goal 7, which focuses on the global effort to ensure access to affordable, reliable, sustainable and modern energy for all.
“Renewable energy and energy efficiency technologies and interventions should be deployed to address global challenges such as population growth and migrations, urban development, climate change mitigation and adaptation, poverty, social, political, health and gender inequalities. Let us double our efforts and keep the momentum high,” said Jesca Eriyo, EAC Deputy Secretary General in charge of Finance and Administration.
Energy has a role to play in achieving universal access to clean water and sanitation
The world has a water problem. More than 2.1 billion people drink contaminated water. More than half the global population – about 4.5 billion people – lack access to proper sanitation services. More than a third of the global population is affected by water scarcity, and 80% of wastewater is discharged untreated, adding to already problematic levels of water pollution.
These statistics make for uncomfortable reading but energy can be part of the solution.
The linkages between water and energy are increasingly recognised across businesses, governments and the public – and have been a major area of analysis in the World Energy Outlook. Thinking about water and energy in an integrated way is essential if the world is to reach the United Nations’ Sustainable Development Goals (SDGs) on water: to ensure the availability and sustainable management of water and sanitation for all.
The connection works in both directions. The energy sector accounts for roughly 10% of total water withdrawals and 3% of total water consumption worldwide. Water is essential to almost all aspects of energy supply, from electricity generation to oil supply and biofuels cultivation. Energy is also required for water treatment and to move water to where it is needed; in a first-of-a-kind global assessment, the World Energy Outlook found that, on aggregate, the energy consumption in the water sector globally is roughly equal to that of Australia today, mostly in the form of electricity but also diesel used for irrigation pumps and gas in desalination plants.
With both water and energy needs set to increase, the inter-dependencies between energy and water will intensify. Our analysis finds that the amount of water consumed in the energy sector (i.e. withdrawn but not returned to a source) could rise by almost 60% to 2040. The amount of energy used in the water sector is projected to more than double over the same period.
This challenge will be especially acute in developing countries. This is where energy demand is rising fastest, with developing countries in Asia accounting for two-thirds of the growth in projected consumption. This is also where water demand is likely to grow rapidly for agriculture as well as supply to industry, power generation and households, including those getting access to reliable clean water and sanitation for the first time. This growth will lead to higher levels of wastewater that must be collected and treated, and will require that water supply is available when and where it is needed. As such, how the water-energy nexus is managed is critical, as it has significant implications for economic and social development and the achievement of the UN SDGs, especially SDG 6 on water.
Technology is opening up new ways to manage the potential strains on both the energy and water sides, with creative solutions that leapfrog those used in the past. For example, building new wastewater capacity that capitalizes on energy efficiency and energy recovery opportunities being pioneered by utilities in the European Union and the United States could help temper the associated rise in energy demand from providing sanitation for all and reducing the amount of untreated wastewater (SDG Target 6.2 and 6.3). In some cases, achieving these targets could even produce energy: WEO analysis found that utilizing the energy embedded in wastewater alone can meet more than half of the electricity required at a wastewater treatment plant.
Summary of SDG 6: Ensure availability and sustainable management of water and sanitation for all
6.1: Universal and equitable access to safe and affordable drinking water for all
6.2: Universal access to adequate and equitable sanitation and hygiene for all and end open defecation, paying special attention to the needs of women and girls
6.3: Improve water quality by reducing pollution, halve the proportion of untreated wastewater and substantially increase recycling and safe reuse globally
6.4: Increase water-use efficiency across all sectors, ensure sustainable withdrawals and supply for freshwater to address water scarcity and lower number of people suffering from water scarcity
6.5: Implement Integrated Water Resource Management at all levels
6.6: Protect and restore water-related ecosystems
6 A/B: Expand international cooperation and capacity-building support to developing countries and strengthen participation by local communities
Source: United Nations, sustainabledevelopment.un.org/sdg6
Smart project designs and technology solutions can also help to reduce the water needs of the energy sector (thereby helping to achieve SDG Target 6.4). The availability of water is an increasingly important measure for assessing the physical, economic and environmental viability of energy projects, and the energy sector is turning to alternative water sources and water recycling to help reduce freshwater constraints. There is also significant scope to lower water use by improving the efficiency of the power plant fleet and deploying more advanced cooling systems for thermal generation.
Moreover the achievement of other energy-related SDGs, including taking urgent action on climate change (SDG 13) and providing energy for all (SDG 7), will depend on understanding the integrated nature of water and energy.
Moving to a low-carbon energy future does not necessarily reduce water requirements. The more a decarbonisation pathway relies on biofuels production, the deployment of concentrating solar power, carbon capture or nuclear power, the more water it consumes. If not properly managed, this means that a lower carbon pathway could exacerbate water stress or be limited by it.
Many who lack access to energy also lack clean water, opening up an opportunity to provide vital services to those most in need, provided these connections are properly managed. Pairing renewable decentralised energy systems (off-grid systems and mini-grids) with filtration technologies can provide both accesses to electricity and safe drinking water (Target 6.1). Similarly, linking a toilet with an anaerobic digester can produce biogas for cooking and lighting. Replacing diesel powered generators with renewables, such as solar PV, to power water pumps can help lower energy costs. However, if not properly managed, this could lead to the inefficient use of water, as was the case in the agricultural sector in India.
As such, the IEA’s new Sustainable Development Scenario, which presents an integrated approach to achieving the main energy-related SDG targets on climate change, air quality and access to modern energy, will add a water dimension to this analysis this year. The aim is to assess what the implications of ensuring clean water and sanitation for all are for the energy sector, and what policymakers need to do to hit multiple goals with an integrated and coherent policy approach.
The WEO’s work on water as part of the Sustainable Development Scenario will be part of WEO-2018, to be released on 13 November, 2018. For more on the WEO’s work on the water-energy nexus, visit iea.org/weo/water
The IEA’s Experts’ Group on R&D Priority-Setting and Evaluation (EGRD) will host a workshop on Addressing the Energy-Water Nexus through R&D Planning and Policies on 28-29 May, 2018.
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