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Middle East, Oil and Security

Osama Rizvi

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In my latest article I mentioned the factors one needs to keep an eye on to track the trajectory of oil prices, for the rest of the year . Geopolitics, of-course, was one of them. Keeping this factor aside, there has not been any significant development pertaining to oil as to affect the prices substantially.

The inventory levels, albeit have drained some barrels are still 170 million above five year moving average. Rig count has fallen but is still high, almost double, as compared to last year. Shale production, more or less, stable, and/or growing. The OPEC and NOPEC meeting is due in November. But without deeper cuts the effect on the markets might be short-lived. Extending the deal further can help to maintain the status-quo, but not improve it.

Back to Middle-East. There are three important developments. The recent meeting between Saudi monarch and Russian president. The upshots of Iraqi referendum. And Joint Comprehensive Plan of Action, as Iran deal is formally known. The first one has the potential to affect the markets in a very substantial way, for the longer-term. The second can cause some undulations in prices but ephemerally. Impact of the third scenario can range from slight to nominal but, followed by sanctions, it has the prowess to upend the Vienna accord and, in the wake of it, causing another price crash.

The meeting between Saudi monarch and Putin shows how oil can help to lubricate relationships at international level. Both the parties in question are at the opposite side on the matter of Syria. KSA, a US ally, is against Bashar-Al-Assad whereas Russia sides with Iran, the arch-rival of KSA, in order to support the Syrian president. However, both of the countries have much more in common than their differences. The economic milieu is not promising in Russia thanks to the double-whammy of sanctions, ratcheted up after the Crimean annexation and the fall in oil prices (for every $1 dollar fall in oil, the country loses $2 billion in revenue). KSA is ready to tackle a $53billion budget deficit even as prices have recovered almost 20% this year (KSA has been posting budget deficits for past 3 years). The masses in wont of the government largess in shape of subsidies, holidays and lax tax policies will now need to learn to live without these, albeit, gradually. Hence, the burgeoning amity between the two countries in question has room to go a long way, or at-least, until the oil prices recover to levels that can help heal the wounds of budget deficits and fall in revenue. This also bodes well for the oil prices as much, rather all, depends upon the cooperation between the two said countries.

The events after the Iraqi referendum should not come as a surprise to anyone. Turkey and Iran’s opposition also. Kirkuk, which contains 10% of Iraq’s oil, if fall under the control of Kurds, the ensuing autonomy  a result of oil revenues and a vantage point owing to their strategic position, will not be acceptable to Iraq or for that matter even Turkey as booth countries have Kurdish population. This can fan the flames of a referendum streak threatening stability in countries with Kurd population (namely Turkey and Iran). The principle of “identity” will clearly and evidently play its role. If Turkey closes the Ceyhan pipeline, the only one that carries oil from Iraq to a Turkish port in Mediterranean, we can expect a quick surge in oil prices, but once again only temporarily.

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The other side of the picture is the conundrum US needs to solve: whom to support? If it supports PMF (Popular Mobilization Forces) as Al-Has Al Sha’abi is known, it provides room to Iran to grow their influence further in Iraq, as the umbrella organization is controlled by the former. If it supports Kurds (Kurdistan Regional Government) it can result in further escalation, exacerbating conditions in a region that cannot afford a new conflict. As of today, 17th October, 2017, Iraqi forces have seized the oil city of Kirkuk. It remains to be seen if there is any retaliation from Kurds.  

Iran deal may not affect oil markets directly, immediately or fundamentally (slightly, may be) but it has a profound link with the market sentiment, moreover, with Vienna accord, the only thing preventing oil prices to crash anew. Observers expect Trump will not abandon the deal but refuse to certify. However, given the whimsical nature of the president, he has threatened Iran with new sanctions. But for a strong impact of these sanctions Trump requires support from Asia and Europe which doesn’t seem to happen. The effect on Iran’s oil sales may be limited, an article in Bloomberg says.

But there is another side to it. What if, a new round of sanctions, starts to seep through and weakens the commitment of the country to continue being a party to Vienna accord? Recall that when this string of meetings and calls began in order to control falling oil prices, Iran declined to participate (justifying that they just recovered from sanctions and need to pump more barrels in order to bring in revenue). If this happens, other countries may follow suit. The Vienna accord can go to pieces. Libya and Nigeria are already exempted. Adding all this up prognosticates another oil price crash. Because it is only this deal that has been primarily holding oil prices at this level. Cemented further by its extension till March 2018 and supported by the hope of another extension when OPEC and NOPEC members meet in November.

The rendezvous between Saudi monarch and Putin plus the Iraqi referendum might help to push prices upward. But Iran’s commitment, like Russia’s, is a lifeline to the oil deal and subsequently, a quintessential condition to maintain, if not improve, the current market sentiment (which is positive). Only time can tell what happens. But it is always better to identify the trends, it is the best we can do.

Independent Economic Analyst, Writer and Editor. Contributes columns to different newspapers. He is a columnist for Oilprice.com, where he analyzes Crude Oil and markets. Also a sub-editor of an online business magazine and a Guest Editor in Modern Diplomacy. His interests range from Economic history to Classical literature.

Energy

Indonesia’s ‘Superheroines’ Empowered with Renewables

MD Staff

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Ibu Bekti, a Wonder Woman from Labuan Bajo, Indonesia. Photo credit: Kopernik

About a third of Indonesians, roughly 80 million people, live without electricity and many more with only unreliable access. In the country’s eastern Solor archipelago, a programme is looking to tackle this issue with an innovative approach, by empowering women with renewable solutions for rural and remote communities.

“In rural Indonesia, energy poverty affects men and women differently and there is a clear and important intersection between energy access and gender equality,” says Sergina Loncle, the Communications Manager at Kopernik, a non-profit organisation headquartered in Indonesia. “Although women have been traditionally restricted from access to information, assets and resources, in many cases they generally are the decision makers on energy issues at the household level, which makes the inter-linkages between energy and gender more pronounced.”

Kopernik believes that empowering women to become micro-social-entrepreneurs will help boost incomes and make clean energy technologies available in off-grid communities. To support this, the organisation launched Wonder Women, or in Indonesian, Ibu Inspirasi, which literally means inspirational women and mothers, says Loncle. The Wonder Women programme gives Indonesian women solar technologies on consignment and shares a margin on every sale — boosting the  ability of women to support their families, helping to reduce the problems associated with inadequate and dangerous energy technologies, and improving the quality of life within the community.

A Kopernik survey suggests the programme is working. Reports show that after 12 months 26% of ‘Wonder Women’ know how to run a business and 21% become more empowered within their families — taking on a greater role in household decision making. Almost half of the survey’s respondents perceived an improvement in their self-status and 19% have increased their empowerment within the community.

Women in the programme are inspirational figures in their villages as they help make clean energy technology available to friends, relatives and neighbours, explains Loncle. Wonder women often become a pillar of support and inspiration for other women in the village, encouraging them to join the programme or support other business ventures.

“I am grateful because people in my community now use affordable, clean energy technologies,” says Maria Nogo, a Wonder Woman in Larantuka, East Flores who has been a part of the programme since March 2015. “By becoming a Wonder Woman, besides saving money, I also have opportunities to introduce these technologies to the people in my community, so I can support them to have a better life.”

A better life with renewables

In its market analysis for Southeast Asia, IRENA supports the Wonder Women programme and advocates for the host of socioeconomic benefits renewables bring to Indonesia and the countries in its region. IRENA shows that renewable energy solutions can reduce fuel expenditures — which drains the limited resources of the poor — and decentralised renewable energy access can substantially reduce poverty by empowering individuals and communities to gain control over their energy supply and reduce their energy spending.

“Over 206,000 Indonesians are directly employed in the renewable energy sector, but there is growing body of evidence that renewable energy solutions support income generation and job creation beyond the energy supply chain,” says Rabia Ferroukhi, Head of IRENA’s Policy Unit and Deputy Director of its Knowledge, Policy and Finance Centre. She says renewables enable technologies that contribute to improved health, access to education, clean water and good nutrition, and can increase economic productivity.

To better assess the economic benefits of decentralised renewable energy in rural areas, poor urban communities, and remote islands of South East Asia, IRENA advises policy makers to look beyond the consumptive uses of energy (e.g. household lighting, cooking) and to also consider its productive uses.

“In remote and rural areas, like those found in Indonesia, renewables are not only the most cost-effective way to provide energy access, they’re a reliable way to support social services and economic development, and that’s a strong reason for governments in the region to support programmes like Wonder Women,” Ferroukhi adds.

IRENA

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Energy

Economic value of energy efficiency can drive reductions in global CO2 emissions

MD Staff

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Ambitious energy efficiency policies can keep global energy demand and energy-related carbon-dioxide (CO₂) emissions steady until 2050, according to a new report by the International Energy Agency. Perspectives for the Energy Transition: The Role of Energy Efficiency shows that despite a near-tripling of the world economy and a global population that increases by nearly 2.3 billion, end-use energy efficiency alone can deliver 35% of the cumulative CO₂ savings through 2050 required to meet global climate goals.

Global energy demand grew by 2.1% in 2017 according to IEA estimates, more than twice the growth rate in 2016. At the same time, global energy-related CO₂ emissions increased for the first time in three years, as improvements in global energy efficiency slowed down dramatically to 1.7%.

“Among all energy trends in 2017, the one that worries me the most is the slowdown in energy efficiency improvements,” said Dr Fatih Birol, Executive Director of the International Energy Agency. “The rate of improvement that we saw is around half of the rate that is required to meet clean energy transition goals.”

IEA analysis in Perspectives for the Energy Transition: The Role of Energy Efficiency demonstrates that on top of a wide range of benefits including cleaner air, energy security, productivity and trade balance improvements, there is a compelling economic case for energy efficiency. But, without further policy efforts, these benefits are unlikely to be realised as less than a third of global final energy demand is covered by efficiency standards today.

Realising the full potential of energy efficiency will require a step-change in investments on the demand side of the energy equation, rising to USD 1.7 trillion per year through 2050, the majority of which is for energy efficiency and the electrification of transport. On the supply side, the focus is on reallocating investments towards renewables and other low-carbon technologies such as nuclear and carbon capture, utilisation and storage.

While the scale of the demand-side investment required may appear challenging, fuel cost savings over the lifetime of most technologies are larger than the investment required, which implies a strong economic benefit that arises from energy efficiency investment. Although there are still many low-hanging fruits that can pay back their initial investment quickly, payback periods are often too long to attract investment from consumers and businesses. Effective policy frameworks are needed to overcome economic and non-economic barriers to energy efficiency and to incentivise adoption of more efficient technologies.

Perspectives for the Energy Transition: The Role of Energy Efficiency demonstrates a compelling economic case for energy efficiency as being essential to make the energy transition affordable, faster and more beneficial to all. The IEA recommends that governments adopt a strategic approach to energy efficiency, supported by well-designed efficiency policies and a strong focus on implementation and enforcement.

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Energy

Report: Powerful New Policy Options to Scale Up Renewables

MD Staff

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A new report by the International Renewable Energy Agency (IRENA), the International Energy Agency (IEA), and the Renewable Energy Policy Network for the 21st Century (REN21), Renewable Energy Policies in a Time of Transition, is an unprecedented collaboration that sheds new light on the policy barriers to increased deployment of renewables and provides a range of options for policymakers to scale-up their ambitions.

Since 2012, renewable energy has accounted for more than half of capacity additions in the global power sector. In 2017 alone a record-breaking 167 GW of renewables capacity was added worldwide. 146 million people are now served by off-grid renewable power, and many small island developing states are advancing rapidly towards targets of 100% renewables.

One of the main rationales behind the call for a higher share of renewables in the energy mix is the urgent threat posed by climate change. Of the 194 parties to the United Nations Framework Convention on Climate Change 145 referred to renewable energy in their nationally determined contributions (NDCs), and 109 included quantified renewable energy targets. Air pollution is also a pressing issue, with an estimated 7.3 million premature deaths per year attributable to household and outdoor air pollution. Energy security is another influencing factor, with small island states particularly affected by security issues and resilience in the face of natural disasters. Finally, countries looking to expand energy access in rural areas are increasingly turning to renewables as the most cost-effective, cleanest and most secure option.

But the pace of the energy transition needs to be substantially accelerated to meet decarbonisation and sustainable development objectives. As outlined in IRENA’s recently-released Global Energy Transformation: A Roadmap to 2050, to achieve the two-degree goal of the Paris target, the share of renewables in the primary global energy supply must increase from 15% today to 65% by 2050. Gains in the electricity sector must be matched in end-use sectors such as heating and transportation, which together account for 80% of global energy consumption.

Renewable Energy Policies in a Time of Transition provides policymakers with a comprehensive understanding of the diverse policy options to support an accelerated development of renewables across sectors, technologies, country contexts, energy market structures, and policy objectives, to scale up renewable energy deployment. An updated joint classification of renewable energy policies to illustrate the latest policy developments around the world.

Key areas of focus:

Heating and Cooling

Heating accounted for over 50% of total final energy consumption in 2015, with over 70% of that met by fossil fuels. To increase the use of renewables, a range of policy instruments are required. These include mandates and obligations, which can offer greater certainty of increased deployment; building codes, which implicitly support renewable heating and cooling from renewables by setting energy performance requirements; renewable heat and energy efficiency policies that are closely aligned to leverage synergies and accelerate the pace of transition; fiscal and financial incentives, which reduce the capital costs of renewables; and carbon or energy taxes, which provide important price signals and reduce externalities.

Transport

Transport is the second largest energy end‑use sector, accounting for 29% of total final energy consumption in 2015, and 64.7% of world oil consumption. With the exception of biofuels, there is little practical experience of fostering renewables in transport. Policies and planning should help overcome the immaturity or high cost of certain technologies, inadequate energy infrastructure, sustainability considerations and slow acceptance among users as new technologies and systems are introduced. They should also build improved understanding between decision makers in the energy and transport sectors, so as to enable integrated planning and policy design. Removal of fossil fuel subsidies is also essential, especially in shipping and aviation.

Power sector

Although the power sector consumed only about a fifth of total final energy consumption in 2015, it has received the most attention in terms of renewable energy support policy. Investments in the sector are largely driven by regulatory policies such as quotas and obligations and pricing instruments, supported by fiscal and financial incentives. Quotas and mandates cascade targets down to electricity producers and consumers, but require a robust framework to monitor and penalize non-compliance. Administratively set pricing policies (like feed-in tariffs and premiums) need to continuously adapt to changing market conditions and the falling cost of technology. Auctions are being increasingly adopted, given their ability for real-price discovery, and have resulted in a five-fold price reduction between 2010 and 2016, though auction design is crucial.

System integration

A number of countries and regions are reaching high penetrations of VRE in their power systems, and implementing policies to facilitate their system integration. Strategies for system integration of renewables are crucial to minimise negative impacts, maximize benefits and improve the cost effectiveness of the power system. As VRE shares grow in the power system, so do the challenges of system integration.

A wide range of policies have been adopted to support the growth of renewable energy around the world. The nature of those policies in a given country depends on the maturity of the sector, the particularities of the market segment, and wider socio-economic conditions. As this report shows, as deployment of renewable energy has grown and the sector has matured, policies must adapt and become more sophisticated to ensure the smooth integration of renewables into the wider energy system – including the end-use sectors – and a cost-effective and sustainable energy transition.

IRENA

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