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India fuels the Global Energy Discourse: A round-up of the 2018 IEF Ministerial conference

Ravi Sankar

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India recently took another step in showcasing its potential for global leadership in the field of sustainable development by hosting the 16th International Energy Forum – Ministerial Conference. The event was held in New Delhi from 10th to 12th April 2018 on “The future of global energy security – Transition, Technology, Trade, and Investment”. This was the second major event on energy hosted by India in recent time. The International Solar Alliance Summit was held in March, where India for the first time turned into a headquarters for the global solar alliance.

IEF is the world’s largest platform for energy ministers. The member countries account for 90% of global supply and demand in energy. India has been a permanent member of the IEF Executive Board since its set up. This time, energy ministers from 50 countries, CEOs of 30 MNCs, Heads of 12 International Organizations and over 500 guests took part in the conference.

It is important to understand the context of the conference. The energy sector is complex and has played a key role in making and breaking of economies in the last 150 years. The present world energy trilemma is the challenge to provide secure, affordable, environmentally sensitive energy to all against the backdrop of is the rapid technological disruption.

We live in a time of increasing uncertainties, shifting roles and emerging configurations. In the recent past, 195 countries in December 2015 signed the Paris agreement on environmental measures. The US withdrew in 2017. Further, the disruption made by the discovery of shale oil caused a glut in the industry, forcing the OPEC and 10 non-OPEC countries to call for a production cut. The agreement is going to end in 2018. The shale oil boom might continue and these countries could again go for a production cut to avoid crude oil glut in the market. Taking these into consideration, a conference like this is essential for a dialogue between politics, economics, and markets. This is also a platform for G2G, G2B, B2B partnerships.

The conference was hosted by India with China and South Korea as co-hosts. Prime Minister Narendra Modi and Dharmendra Pradhan, Minister for Petroleum and Natural Gas & Skill Development and Entrepreneurship inaugurated the conference. Prime Minister Narendra Modi, in his inaugural address, stressed on energy access, efficiency, sustainability, and security. He also mentioned about the need for a  supportive relationship between producer and consumer countries. Modi said India would be a key driver of global energy demand in next 25 years. The ministerial dialogue for informal discussions on these was structured in four thematic plenary sessions and four parallel roundtables.

The plenary sessions were focussed on:

  • Global shifts: The Future of Global Energy Security – Finding New Balances
  • Sustainable and Inclusive Growth – Energy Access and Affordability
  • Oil and Gas Market Stability and Change – Investment in a New Era
  • Uptake of Clean Technologies: Disruption and Coexistence of New and Existing Technologies – The Way Ahead

Parallel Roundtables:

  • Refining and petrochemical sector: New growth potentials and rationalization
  • Fiscal regimes and legal reform to attract investment in the energy sector
  • Energy sector digitization: Benefits and challenges
  • Human resources: Attracting talent to a vibrant industry – Integrating new generations and technologies.

India presented that energy would be a key engine for its economic growth and mentioned it’s ambition to generate 175 GW of clean energy by 2022. India signaled that it is open for investments in the Oil and Gas sector. Gas trading hubs, to control the gas pricing across the nation would become functional by end of 2018. India is also developing energy infrastructure in its neighboring countries.

Informal meetings at policy and technical levels took place, with an aim to improve policy and investment decisions through increased knowledge and experience sharing. India along with China, responsible for 50% of growth in global energy demand, called for reasonable pricing, in the response to the Asian premium that makes us pay 6$ per barrel more than other western countries. Saudi Aramco, one of the world’s largest oil company partners with IOCL, HPCL, BPCL  to set up world’s largest refinery in Ratnagiri, Maharashtra with 44 billion USD (3 lakh crores) investment.

As solar and wind tariffs of India are cheap at  Rs. 2.44 per kWh, Bangladesh expressed its interests to buy at least 2000MW of the solar power set up in Gujarat and Rajasthan. Zambia expressed its interests to learn from India’s expertise in renewable energy and also said that China with its effective pricing and low-interest rates is able to win their bids. The Iranian oil minister cautioned the world against politicizing the global oil market, noted that adopting such policy will harm not only suppliers but also customers. ONGC Videsh Ltd has recently cut a deal with Iran over Farzad-B field. ONGC also expressed that it will produce gas from KG Basin by end 2019 and oil by 2021. UAE is exploring Hydrogen for its future energy strategy. The valedictory address was given by the Minister of External Affairs Sushma Swaraj.

Energy is one of the prime drivers of economic and social development. Of the top 20 in the Fortune 500,  seven are oil companies. The oil sector had played a crucial role in making countries powerful. Because of raising environment measures and technology disruptions every decade, organizations like IEA, OPEC, IEF are continuously working to stabilize these disruptions. India with its high GDP growth rate might be responsible for one-third of the global growth in energy demand till 2030 and is also trying to project itself as a global leader for sustainable growth. We wish to see India fulfilling these promises both to the Indian public and the world. In a world where, Energy, Infrastructure, and Connectivity are the key players, India seems to be making the right moves.

The author has an interest in issues concerning socio-economic development through global energy dynamics. He has built prototypes for Road Power Generation and published the same. He worked as a consultant for global energy MNCs through NTT Data, before joining Vision India Foundation, a public-policy think tank.

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“Oil for development” budget, challenges and opportunities

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Iran has recently announced that its next fiscal year’s budget is going to be set with less reliance on oil revenues.

Last week, Head of the Country’s Budget and Planning Organization (BPO) Mohammad Baqer Nobakht said “In the next year’s budget – it starts on March 19, 2020 – oil revenues will be only spent for development projects and acquisition of capital asset, and not even one rial is going to go to government expenditures and other areas.”

At first glance, the idea is very appealing and it seems if the government manages to pull it off, it will be a significant step for Iran in its movement toward an oil-independent economy. However, it seems that cutting oil revenues from the budget and allocating them only to a specific part of the country’s expenditures is not going to be an easy task.

Although, BPO has already suggested various substitute sources of revenue to replace those of oil, some experts believe that the offered alternatives are not practical in the short-term.

So, how successful will the government be in executing this plan? What are the challenges in the way of this program? What are the chances for it to become fully practical next year?

To answer such questions and to have a clearer idea of the notion, let’s take a more detailed look into this [so called] ambitious program. 

The history of “oil for development”

It is not the first time that such a program is being offered in Iran. Removing oil revenues from the budget and allocating it to development projects goes way back in Iran’s modern history.

In 1927, the Iranian government at the time, decided to go through with a plan for removing oil revenues from the budget, so a bill was approved based on which oil incomes were merely allocated to the country’s development projects.

This law was executed until the year 1939 in which the plan was once again overruled due to what was claimed to be “financial difficulties”.

Since then up until recently, Iran has been heavily reliant on its oil revenues for managing the country’s expenses. However, in the past few years, and in the face of the U.S. sanctions, the issue of oil being used as a political weapon, made the Iranian authorities to, once again, think about reducing the country’s reliance on oil revenues.

In the past few years, Iran’s Supreme Leader Ayatollah Seyed Ali Khamenei has repeatedly emphasized the need for reducing reliance on oil and has tasked the government to find ways to move toward an oil-independent economy.

Now that Iran has once again decided to try the “oil for development” plan, the question is, what can be changed in a program that was aborted 80 years ago to make it more compatible with the country’s current economic needs and conditions.

The substitute sources of income

Shortly after BPO announced its decision for cutting the oil revenues from the next year’s budget, the Head of the organization Mohammad-Baqer Nobakht listed three alternative sources of income to offset oil revenues in the budget planning.

According to the official, elimination of hidden energy subsidies, using government assets to generate revenue and increasing tax incomes would be the main sources of revenues to compensate for the cut oil incomes.

In theory, the mentioned replacements for oil revenues, not only can generate a significant amount of income, but they could, in fact, be huge contributors to the stability of the country’s economy in the long run. 

For instance, considering the energy subsidies, it is obvious that allocating huge amounts of energy and fuel subsidies is not a good strategy to follow.

In 2018, Iran ranked first among the world’s top countries in terms of the number of subsidies which is allocated to energy consumption with $69 billion of subsidies allocated for various types of energy consumption including oil, natural gas, and electricity.

Based on data from the International Energy Agency (IEA), the total amount of allocated subsidies in Iran equals 15 percent of the country’s total GDP.

The budget that is allocated for subsidies every year could be spent in a variety of more purposeful, more fruitful areas. The country’s industry should compete in order to grow, people must learn to use more wisely and to protect the environment.

However, practically speaking, all the above-mentioned alternatives are in fact long term programs that take time to become fully operational. A huge step like eliminating hidden subsidiaries cannot be taken over a one or event two-year period.

The development aspect

One big aspect of the government’s current decision is the “development” part of the equation.

A big chunk of the country’s revenues is going to be spent on this part and so the government is obliged to make sure to choose such “development” projects very wisely.

Deciding to allocate a huge part of the country’s income on a specific sector, makes it more prone to corruption, and therefore, a plan which is aimed to help the country’s economy could become a deteriorating factor in itself if not wisely executed.

The question here is, “Is the government going to spend oil money on all the projects which are labeled as ‘development’ even if they lack the technical, economic and environmental justification?”

So, the government needs to screen development projects meticulously and eliminate the less vital ones and then plan according to the remaining truly-important projects.

Final thoughts

Even if the “oil-free” budget is a notion that seems a little ambitious at the moment, and even if there are great challenges in the way of its realization, but the decision itself is a huge step toward a better future for Iran’s economy. Although realizing this plan seems fairly impossible in the short-term, it surely can be realized with proper planning and consideration in the long term.

Sooner or later Iran has to cut off the ties of reliance on oil incomes and start moving toward a vibrant, dynamic and oil-free economy; a journey of which the first step has been already taken.

From our partner Tehran Times

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Growing preference for SUVs challenges emissions reductions in passenger car market

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Authors: Laura Cozzi and Apostolos Petropoulos*

With major automakers announcing new electric car models at a regular pace, there has been growing interest in recent years about the impact of electric vehicles on the overall car market, as well as global oil demand, carbon emissions, and air pollution.

Carmakers plan more than 350 electric models by 2025, mostly small-to-medium variants. Plans from the top 20 car manufacturers suggest a tenfold increase in annual electric car sales, to 20 million vehicles a year by 2030, from 2 million in 2018. Starting from a low base, less than 0.5% of the total car stock, this growth in electric vehicles means that nearly 7% of the car fleet will be electric by 2030.

Meanwhile, the conventional car market has been showing signs of fatigue, with sales declining in 2018 and 2019, due to slowing economies. Global sales of internal combustion engine (ICE) cars fell by around 2% to under 87 million in 2018, the first drop since the 2008 recession. Data for 2019 points to a continuation of this trend, led by China, where sales in the first half of the year fell nearly 14%, and India where they declined by 10%.

These trends have created a narrative of an imminent peak in passenger car oil demand, and related CO2 emissions, and the beginning of the end for the “ICE age.” As passenger cars consume nearly one-quarter of global oil demand today, does this signal the approaching erosion of a pillar of global oil consumption?

A more silent structural change may put this conclusion into question: consumers are buying ever larger and less fuel-efficient cars, known as Sport Utility Vehicles (SUVs).

This dramatic shift towards bigger and heavier cars has led to a doubling of the share of SUVs over the last decade. As a result, there are now over 200 million SUVs around the world, up from about 35 million in 2010, accounting for 60% of the increase in the global car fleet since 2010. Around 40% of annual car sales today are SUVs, compared with less than 20% a decade ago.

This trend is universal. Today, almost half of all cars sold in the United States and one-third of the cars sold in Europe are SUVs. In China, SUVs are considered symbols of wealth and status. In India, sales are currently lower, but consumer preferences are changing as more and more people can afford SUVs. Similarly, in Africa, the rapid pace of urbanisation and economic development means that demand for premium and luxury vehicles is relatively strong.

The impact of its rise on global emissions is nothing short of surprising. The global fleet of SUVs has seen its emissions growing by nearly 0.55 Gt CO2 during the last decade to roughly 0.7 Gt CO2. As a consequence, SUVs were the second-largest contributor to the increase in global CO2 emissions since 2010 after the power sector, but ahead of heavy industry (including iron & steel, cement, aluminium), as well as trucks and aviation.

On average, SUVs consume about a quarter more energy than medium-size cars. As a result, global fuel economy worsened caused in part by the rising SUV demand since the beginning of the decade, even though efficiency improvements in smaller cars saved over 2 million barrels a day, and electric cars displaced less than 100,000 barrels a day.

In fact, SUVs were responsible for all of the 3.3 million barrels a day growth in oil demand from passenger cars between 2010 and 2018, while oil use from other type of cars (excluding SUVs) declined slightly. If consumers’ appetite for SUVs continues to grow at a similar pace seen in the last decade, SUVs would add nearly 2 million barrels a day in global oil demand by 2040, offsetting the savings from nearly 150 million electric cars.

The upcoming World Energy Outlook will focus on this under-appreciated area in the energy debate today, and examines the possible evolution of the global car market, electrification trends, and consumer preferences and provides insights for policy makers.

While discussions today see significant focus on electric vehicles and fuel economy improvements, the analysis highlights the role of the average size of car fleet. Bigger and heavier cars, like SUVs, are harder to electrify and growth in their rising demand may slow down the development of clean and efficient car fleets. The development of SUV sales given its substantial role in oil demand and CO2 emissions would affect the outlook for passenger cars and the evolution of future oil demand and carbon emissions.

*Apostolos Petropoulos, Energy Modeler.

This commentary is derived from analysis that will be published on 13 November 2019 in the forthcoming World Energy Outlook 2019. IEA

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A Century of Russia’s Weaponization of Energy

Todd Royal

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In 1985 a joint meeting between U.S. President Ronald Reagan, and former Soviet leader, Mikhail Gorbachev conveyed this enduring sentiment during the height of the Cold War, “a nuclear war cannot be won and must never be fought.” This sentiment began moving both countries, and the world away from Mutually Assured Destruction (M.A.D.); and soon thereafter the Cold War ended. With the rise of Vladimir Putin, and the return of the Russian strongman based on the Stalin-model of leadership, Russia now uses and wields Russian energy assets, as geopolitical pawns (Syrian and Crimean invasions) the way they once terrorized the world with their nuclear arsenal.

Russia will remain a global force – even with an economy over reliant on energy – and Putin being the political force that controls the country. What makes the Russian weaponization of energy a force multiplier is “its vast geography, permanent membership in the UN Security Council, rebuilt military, and immense nuclear forces,” while having the ability to disrupt global prosperity, and sway political ideologies in the United States, Europe, Middle East, Asia, and the entire Artic Circle.

Putin understands that whoever controls energy controls the world – mainly fossil fuels – oil, petroleum, natural gas, coal, and nuclear energy to electricity is now added to this dominating mix. Now that Stalin has taken on mythological status under Putin’s tutelage, Joseph Stalin once said“The war (WWII) was decided by engines and octane.”Winston Churchill agreed with Stalin on the critical importance of fuel: “Above all, petrol governed every movement.”

The most devastating war in human history, and one that killed millions of Russians continues driving Putin’s choice to make energy the focal point of their economy, military, and forward-projecting foreign policy. This began the modern, energy-industrial complex that mechanized and industrialized energy as a war-making tool that still affects people-groups, countries, and entire regions of the world.

Russia, then the U.S.S.R. (former Soviet Union), and now current Russia have always thought of energy as a way for their government to dominate their countrymen, traditional spheres of influence (Ukraine, Georgia, Moldova, Ukraine, Estonia, Latvia, Lithuania, Belarus, Central Asia), and a strategic buffer zone against land-based attacks that came from Napoleon and Hitler’s armies that still haunts the Russian psyche.

The timeline of Russia from the 1917, violence-fueled Russian Revolution that brought the Bolsheviks to power, the rise and death of Stalin in 1953, World War II in-between, the Cold War that began March 5, 1946 in Winston Churchill’s famous speech declaring “an Iron Curtain has descended across the Continent,” has been powered by energy.

This kicked off the Cold War until the collapse of the Soviet Union in 1991. During this epoch in history the Soviets promoted global revolution using their economy and military that ran on fossil fuels and nuclear weaponry. In 1999 Vladimir Putin becomes Prime Minister after Boris Yeltsin resigns office, and the rebirth of the Soviet Union, and weaponization of energy continues until today under Putin’s regime.

What Russia now promotes foremost over all objectives: “undermining the U.S.-led liberal international order and the cohesion of the West.”Russia’s principal adversaries in this geopolitical tug-of-war over energy and influence are the U.S., the European Union (EU), and North Atlantic Treaty Organization (NATO). All of these variables are meant to bolster Russia and Putin’s “commercial, military, and energy interests.”

This geopolitical struggle doesn’t take place without abundant, reliable, affordable, scalable, and flexible oil, and natural gas. This is likely why Russia has begun a massive coal exploration and production (E&P) program that has grown exponentially since 2017 according to Russia’s Federal State Statistics Service.

The entire Russian economy is now based on rewarding Putin’s oligarchical cronies, and ensuring Russian energy giants Rosneft and Gazprom can fill the Kremlin’s coffers to annex Crimea and gain a strategic foothold in the Middle East via the Syrian invasion. This economic system is now referred to as “Putinomics.” Using energy resources to fund global chaos, and wars while rewarding his favorite oligarchs and agencies that do the Kremlin’s bidding.

Russia is now in a full-fledged battle with western powers, and its affiliated allies over the fossil fuel industry. While the rest of the world is attempting to incorporate renewable energy to electricity onto its electrical grids, and pouring government monies into building momentum for a carbon-free society, Russia is going the opposite direction.

Moscow’s energy intentions are clear, and have been for over one hundred years. Currently, there Syrian foothold has allowed them to entrench themselves back into the Middle East. This time they aren’t spreading revolutionary communism, instead it is Putin-driven oil and natural gas supplies through pipelines and E&P rights acquired in “Turkey, Iraq, Lebanon, and Syria.”

Russia has a clear pathway to block U.S. liquid natural gas (LNG) into Europe, and a land bridge from the Middle East to Europe almost guarantees Russian natural gas is cheaper, more accessible, and maintains that Europe looks to Russia first for its energy needs. By cementing their role as the “primary gas supplier and expands its influence in the Middle East,” the U.S., EU, and NATO’s military dominance are overtaken by natural gas that Europe desperately needs to power their economies, and heat their homes in brutal, winter months.

To counter Russian energy influence bordering on a monopoly over European energy needs, the current U.S. administration should make exporting natural gas into LNG a top “priority.” Work with European allies in Paris, Berlin, and NATO headquarters to operationally thwart Moscow’s “Middle East energy land bridge.” Global energy security is too important by allowing Russian influence to continue spreading.

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