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USA: “Non-economic Coercion Measures” for Europe

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The next few months can be critical for implementing projects to supply Russian gas to Europe. The US administration is stepping up efforts aimed at disrupting the construction of the Nord Stream-2 gas pipeline.

At the same time, at the other end of the European energy map – in the Balkans – discussions on a future regional gas structure with a possible parallel renewal of the construction of a gas pipeline from Russia to Bulgaria under  the Black Sea have livened up against the background of the successful implementation of the Turkish Stream project.

On May 23 at the hearings of the Foreign Affairs Committee of the US Congress House of Representatives, the US Secretary of State, Mike Pompeo, said that the USA intends to halt the implementation of the Nord Stream-2 project. “We must continue to exert pressure to curtail Nord Stream-2.” We should not increase Europe’s dependence on Russian energy supplies. If we succeed, we will help Europe to stand firm “, he stressed.

According to his explicit statements – “while Europeans depend on Russian energy supplies, it limits their freedom of action against Russia. In reality, it is a bit more complicated, but, in fact, this statement is true. We have a real opportunity to detach them from Russia in many aspects. ”

Washington needs to rule out the situation in which “during the crisis period,” Russia might use energy supplies to exert pressure on Europe, Mike Pompeo believes:”We must make sure that they have no such leverage.” (rbc.ru)

Responding to this the Russian Embassy in the USA said that opposing to the construction of the Nord Stream-2 gas pipeline Washington “is imposing its non-competitive liquefied natural gas on Europe”. Russian diplomats noted that geopolitics again “unduly interferes in the economy” and “discredits the slogans about supplies diversification.”

Russian diplomats recalled that former US President Ronald Reagan, who is “the idol of the current Republicans”, also opposed the construction of a gas pipeline from the USSR to Germany in early 1980s. His administration imposed sanctions against those companies that took part in the construction of the gas pipeline. Then Washington also justified its actions by the need “not to allow Russia to strengthen its influence on the European allies of the United States,” the embassy noted.

This is in reference to the directive of President Reagan, signed in 1983. It  envisaged the use of economic pressure in order to limit the foreign and military potential of the USSR and, in particular, to counter the construction of the main export gas pipeline Urengoy-Pomary-Uzhgorod with the participation of companies and banks from European countries.

“Today, in this sense, we seem to have returned 35 years ago. The same rhetoric, the same methods. Only now the administration protects that gas pipeline, because it was built through Ukraine, “the Russian diplomats stressed. They also recalled that Ronald Reagan “had the wisdom” to remove all restrictions two years later because of their “total meaninglessness,” and expressed the hope that the administration of  President Donald Trump “will draw conclusions from history much sooner.” (rbc.ru)

Berlin also criticized the position of the Donald Trump administration regarding the project for constructing the second stage of the gas pipeline from Russia to Germany. German Economic Affairs and Energy Minister Peter Altmaier said that Washington’s goal is to ensure the supply of large volumes of its own liquefied natural gas (LNG) to Europe. “They have an extensive infrastructure of terminals for liquefied natural gas, which they must use for their own benefit,” the minister said.

He stressed that the USA remains to be Germany’s friends and partners, but the German government prefers to defend “common values”: if Washington follows the “America first” principle and protects primarily its own interests, then the USA should understand that Europe will defend the European ones.

In addition, Peter Altmaier expressed doubts that the US administration will succeed in achieving its geo-economic goals in the energy sector even if the project for the construction of the second stage  gas pipeline from Russia to Germany is eventually blocked since liquefied natural gas will still cost the Europeans more than the pipeline gas. “So blocking Nord Stream-2 on its own will not guarantee the export of American LNG to Europe,” the German minister said. (rbc.ru)

Former German Federal Chancellor Gerhard Schroeder was even more outspoken on this matter. According to him, the US resistance to the construction of the Nord Stream-2 gas pipeline has no rational justification; it can be explained only by the commercial interests of competitors.

“There are no rational arguments against the” Nord Stream – 2 “, such arguments are just being made up. Behind them are private and economic interests of competitors, in particular, the United States” – he said during a business breakfast at the St. Petersburg International Economic Forum.

According to Gerhard Schroeder, who is the chairman of the board of directors of Nord Stream AG, the USA wants to sell its liquefied natural gas to European consumers, without taking into account whether it meets the quality and particular characteristics of European capacities. Such behavior threatens the energy security of the region’s gas infrastructure” – Gerhard Schroeder said. (rbc.ru)

Germany’s position on the Nord Stream-2 project is determined by purely economic, as well as, in broader terms, pan-European considerations – taking into account the growing tension in relations between the USA and its European allies.

«Even as the European leaders remain at odds with Russian President Vladimir Putin over Ukraine, Syria and other issues, the Iran crisis is pushing them closer together. At the same time, Angela Merkel’s ties with Trump are deteriorating, with the USA now threatening to punish German companies involved in building a new pipeline for Russian gas under the Baltic Sea», – the American business news agency Bloomberg says.(bloomberg.com)

Increasing pressure on European governments and companies to force them to abandon the implementation of the Nord Stream-2 project, in addition to deepening the contradictions on both sides of the Atlantic, has another important consequence.

The pressure on the above project irrespective of its results objectively increases the chances of implementing energy sector projects on the south-eastern flank of Europe. The countries located there are clearly in a hurry to raise their own bets in the energy party in order to get the role of not only the regional but also the pan-European gas distribution hub.

Within the given context, it is by no means accidental that the President of Bulgaria, Rumen Radev, during a two-day visit to Russia, re-created a new project for the construction of a Russian-Bulgarian gas pipeline. Recalling the Russian-German gas project, as well as the importance of energy security for Sofia and Brussels, he said: “I hope that our governments will reconsider the possibility of direct gas supplies from Russia through the Black Sea.” At the same time, Radev stressed that Russia has always been Bulgaria’s strategic partner in the energy sector, supplying natural gas, oil and nuclear fuel. (rbc.ru)

Rumen Radev elaborated on the subject in an interview with the Russian media, timed for his visit to Sochi. “Undoubtedly, the safest, most reliable and cheapest way is direct. Especially when it comes to the supply of additional Russian natural gas to Bulgaria, Serbia, Hungary, Austria and northern Italy. For Russia as well as for Bulgaria, a logical choice for expanding the supply of Russian natural gas to Europe is through Bulgaria, “he said. (kommersant.ru)

It is obvious that in the near future we can expect intensification of bilateral and multilateral discussions regarding the future gas transportation infrastructure in South-Eastern Europe with its “linkage” to Austria or Italy. And Bulgaria and Turkey will be the key players here. Ankara is unlikely to take a positive view of Sophia’s intention to lock on itself regional gas flows, instead of receiving gas from the second  “Turkish stream” export  line.

The publication in one of the leading Turkish newspapers – Habertürk is quite telling – without mentioning the initiative of the Bulgarian side, it has actually joined the discussion about who will become the main beneficiary of the Russian gas transit: “Where from and where to will the second line of the”Turkish stream” go? It is unknown yet. What will this line be: Greece – Italy, Bulgaria – Serbia – Hungary? Time will tell”. (haberturk.com)

The interest of the countries of South-Eastern Europe in becoming not only consumers but also transit hubs of Russian gas is also determined by their geographical location, which complicates the receipt of LNG tankers from the USA (unlike the capabilities of Germany, Poland or the Baltic countries). Appropriate receiving and re-gasification terminals can only be used in Croatia and Greece, but undeveloped pipeline infrastructure for further transportation deprives such supplies of economic meaning for countries such as Austria, Hungary, the Czech Republic or Slovakia.

The current multi-directional trends in the world oil market is an additional factor of uncertainty – as the situation in the market directly determines the gas price. Most experts refrain from long-term forecasts, but several estimates foreshadow a further increase in world oil prices. Thus, the experts of Bank of America predict that the price of oil will return to $ 100 per barrel by 2019, and specialist in the field of oil hedge funds Pierre Andurand believes that even $ 300 per barrel “is not impossible.” (vestifinance.ru)

It should also be taken into consideration that the continuing trend towards an increase in world oil prices objectively undermines the belief in the ability of the US shale industry (both oil and gas) to effectively influence global processes. “Shale oil will not solve the current oil supply problems” the British Guardian quotes Goldman Sachs experts as saying. (theguardian.com)

The key shale oil  field in the USA – the Permian – is operating at its limit. It suffers from a lack of space not only for oil production, but also for natural gas production, – analysts of S & P Global Platts warn. (vestifinance.ru)

All  this,  in turn, betokens new attempts by the Donald Trump administration to achieve its global economic goals by what is called in political economy as “measures of non-economic coercion”.

First published in our partner International Affairs

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Energy

Indonesian Coal Roadmap: Optimizing Utilization amid Global Tendency to Phasing Out

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Authors: Razin Abdullah and Luky Yusgiantoro*

Indonesia is potentially losing state revenue of around USD 1.64-2.5 billion per year from the coal tax and non-tax revenues. Although currently Indonesia has abundant coal resources, especially thermal coal, the coal market is gradually shrinking. This shrinking market will negatively impact Indonesia’s economy. The revenue can be used for developing the country, such as for the provision of public infrastructures, improving public education and health services and many more.

One of the main causes of the shrinking coal market is the global tendency to shift to renewable energy (RE). Therefore, a roadmap is urgently needed by Indonesia as a guideline for optimizing the coal management so that it can be continuously utilized and not become neglected natural resources. The Indonesian Coal Roadmap should also offer detailed guidance on utilizing coal for the short-term, medium-term and long-term.

Why is the roadmap needed?

Indonesia’s total coal reserves is around 37.6 billion tons. If there are no additional reserves and the assumed production rate is 600 million tons/year, then coal production can continue for another 62 years. Even though Indonesia’s coal production was enormous, most of it was for export. In 2019, the export reached 454.5 million tons or almost 74% of the total production. Therefore, it shows a strong dependency of the Indonesian coal market on exports, with China and India as the main destinations. The strong dependency and the global trend towards clean energy made the threat of Indonesian coal abandonment increasingly real.

China, one of Indonesia’s main coal export destinations, has massive coal reserves and was the world’s largest coal producer. In addition, China also has the ambition to become a carbon-free country by 2060, following the European Union countries, which are targeting to achieve it in 2050. It means China and European Union countries would not produce more carbon dioxide than they captured by 2060 and 2050, respectively. Furthermore, India and China have the biggest and second-biggest solar park in the world. India leads with the 2.245GW Bhadla solar park, while China’s Qinghai solar park has a capacity of 2.2GW. Those two solar parks are almost four times larger than the U.S.’ biggest solar farm with a capacity of 579 MW. The above factors raise concerns that China and India, as the main export destinations for Indonesian coal, will reduce their coal imports in the next few years.

The indications of a global trend towards RE can be seen from the energy consumption trend in the U.S. In 2019, U.S. RE consumption exceeded coal for the first time in over 130 years. During 2008-2019, there has been a significant decrease in U.S coal consumption, down by around 49%. Therefore, without proper coal management planning and demand from abroad continues to decline, Indonesia will lose a large amount of state revenue. The value of the remaining coal resources will also drop drastically.

Besides the global market, the domestic use of coal is mostly intended for electricity generation. With the aggressive development of RE power plant technology, the generation prices are getting cheaper.  Sooner or later, the RE power plant will replace the conventional coal power plant. Therefore, it is necessary to emphasize efforts to diversify coal products by promoting the downstream coal industries in the future Indonesian Coal Roadmap.

What should be included: the short-term plan

In designing the Indonesian Coal Roadmap, a special attention should be paid to planning the diversification of export destinations and the diversification of coal derivative products. In the short term, it is necessary to study the potential of other countries for the Indonesian coal market so that Indonesia is not only dependent on China and India. As for the medium and long term, it is necessary to plan the downstream coal industry development and map the future market potential.

For the short-term plan, the Asian market is still attractive for Indonesian coal. China and India are expected to continue to use a massive amount of coal. Vietnam is also another promising prospective destination. Vietnam is projected to increase its use of coal amidst the growing industrial sector. In this plan, the Indonesian government plays an essential role in building political relations with these countries so that Indonesian coal can be prioritized.

What should be included: the medium and long-term plans

For the medium and long-term plans, it is necessary to integrate the coal supply chain, the mining site and potential demand location for coal. Therefore, the coal logistics chain becomes more optimal and efficient, according to the mining site location, type of coal, and transportation mode to the end-user. Mapping is needed both for conventional coal utilization and downstream activities.

Particularly for the downstream activities, the roadmap needs to include a map of the low-rank coal (LRC) potentials in Indonesia, which can be used for coal gasification and liquefaction. Coal gasification can produce methanol, dimethyl ether (a substitute for LPG) and, indirectly, produce synthetic oil. Meanwhile, the main product of coal liquefaction is synthetic oil, which can substitute conventional oil fuels. By promoting the downstream coal activities, the government can increase coal’s added value, get a multiplier effect, and reduce petroleum products imports.

The Indonesian Coal Roadmap also needs to consider related existing and planned regulations so that it does not cause conflicts in the future. In designing the roadmap, the government needs to involve relevant stakeholders, such as business entities, local governments and related associations.

The roadmap is expected not only to regulate coal business aspects but also to consider environmental aspects. The abandoned mine lands can be used for installing a solar farm, providing clean energy for the country. Meanwhile, the coal power plant is encouraged to use clean coal technology (CCT). CCT includes carbon capture storage (CCS), ultra-supercritical, and advanced ultra-supercritical technologies, reducing emissions from the coal power plant.

*Luky Yusgiantoro, Ph.D. A governing board member of The Purnomo Yusgiantoro Center (PYC).

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Engaging the ‘Climate’ Generation in Global Energy Transition

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photo: IRENA

Renewable energy is at the heart of global efforts to secure a sustainable future. Partnering with young people to amplify calls for the global energy transition is an essential part of this endeavour, as they represent a major driver of development, social change, economic growth, innovation and environmental protection. In recent years, young people have become increasingly involved in shaping the sustainable development discourse, and have a key role to play in propelling climate change mitigation efforts within their respective communities.

Therefore, how might we best engage this new generation of climate champions to accentuate their role in the ongoing energy transition? In short, engagement begins with information and awareness. Young people must be exposed to the growing body of knowledge and perspectives on renewable energy technologies and be encouraged to engage in peer-to-peer exchanges on the subject via new platforms.

To this end, IRENA convened the first IRENA Youth Forum in Abu Dhabi in January 2020, bringing together young people from more than 35 countries to discuss their role in accelerating the global energy transformation. The Forum allowed participants to take part in a truly global conversation, exchanging views with each other as well as with renewable energy experts and representatives from governments around the world, the private sector and the international community.

Similarly, the IRENA Youth Talk webinar, organised in collaboration with the SDG 7 Youth Constituency of the UN Major Group for Children and Youth, presented the views of youth leaders, to identify how young people can further the promotion of renewables through entrepreneurship that accelerates the energy transition.

For example, Joachim Tamaro’s experience in Kenya was shared in the Youth Talk, illustrating how effective young entrepreneurs can be as agents of change in their communities. He is currently working on the East Africa Geo-Aquacultural Development Project – a venture that envisages the use of solar energy to power refrigeration in rural areas that rely on fishing for their livelihoods. The project will also use geothermal-based steam for hatchery, production, processing, storage, preparation and cooking processes.

It is time for governments, international organisations and other relevant stakeholders to engage with young people like Joachim and integrate their contributions into the broader plan to accelerate the energy transition, address climate change and achieve the UN Sustainable Development Agenda.

Business incubators, entrepreneurship accelerators and innovation programmes can empower young people to take their initiatives further. They can give young innovators and entrepreneurs opportunities to showcase and implement their ideas and contribute to their communities’ economic and sustainable development. At the same time, they also allow them to benefit from technical training, mentorship and financing opportunities.

Governments must also engage young people by reflecting their views and perspectives when developing policies that aim to secure a sustainable energy future, not least because it is the youth of today who will be the leaders of tomorrow.

IRENA

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The Urgency of Strategic Petroleum Reserve (SPR) for Indonesia’s Energy Security

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Authors:Akhmad Hanan and Dr. Luky Yusgiantoro*

Indonesia is located in the Pacific Ring of Fire, which has great potential for natural disasters. These disasters have caused damage to energy infrastructure and casualties. Natural disasters usually cut the energy supply chain in an area, causing a shortage of fuel supply and power outages.

Besides natural disasters, energy crisis events occur mainly due to the disruption of energy supplies. This is because of the disconnection of energy facilities and infrastructure by natural disasters, criminal and terrorist acts, escalation in regional politics, rising oil prices, and others. With strategic national energy reserves, particularly strategic petroleum reserves (SPR), Indonesia can survive the energy crisis if it has.

Until now, Indonesia does not have an SPR. Meanwhile, fuel stocks owned by business entities such as PT Pertamina (Persero) are only categorized as operational reserves. The existing fuel stock can only guarantee 20 days of continuity. Whereas in theory, a country has secured energy security if it has a guaranteed energy supply with affordable energy prices, easy access for the people, and environmentally friendly. With current conditions, Indonesia still does not have guaranteed energy security.

Indonesian Law mandates that to ensure national energy security, the government is obliged to provide national energy reserves. This reserve can be used at any time for conditions of crisis and national energy emergencies. It has been 13 years since the energy law was issued, Indonesia does not yet have an SPR.

Lessons from other countries

Many countries in the world have SPR, and its function is to store crude oil and or fuel oil. SPR is built by many developed countries, especially countries that are members of the International Energy Agency (IEA). The IEA was formed due to the disruption of oil supply in the 1970s. To avoid the same thing happening again, the IEA has made a strategic decision by obliging member countries to keep in the SPR for 90 days.

As one of the member countries, the US has the largest SPR in the world. Its storage capacity reaches a maximum of 714 million barrels (estimated to equal 115 days of imports) to mitigate the impact of disruption in the supply of petroleum products and implement US obligations under the international energy program. The US’ SPR is under the control of the US Department of Energy and is stored in large underground salt caves at four locations along the Gulf of Mexico coastline.

Besides the US, Japan also has the SPR. Japan’s SPR capacity is 527 million barrels (estimated to equal 141 days of imports). SPR Japan priority is used for disaster conditions. For example, in 2011, when the nuclear reactor leak occurred at the Fukushima nuclear power plant due to the Tsunami, Japan must find an energy alternative. Consequently, Japan must replace them with fossil fuel power plants, mainly gas and oil stored in SPR.

China, Thailand, and India also have their own SPR. China has an SPR capacity of 400-900 million barrels, Thailand 27.6 million barrels, and India 37.4 million barrels. Singapore does not have an SPR. However, Singapore has operational reserve in the form of fuel stock for up to 90 days which is longer than Indonesia.

Indonesia really needs SPR

The biggest obstacles of developing SPR in Indonesia are budget availability, location selection, and the absence of any derivative regulations from the law. Under the law, no agency has been appointed and responsible for building and managing SPR. Also, government technical regulations regarding the existence and management of SPR in Indonesia is important.

The required SPR capacity in Indonesia can be estimated by calculating the daily consumption from the previous year. For 2019, the national average daily consumption of fuel is 2.6 million kiloliters per day. With the estimation of 90 days of imports, Indonesia’s SPR capacity must at least be more than 100 million barrels to be used in emergencies situations.

For selecting SPR locations, priority can be given to areas that have safe geological structures. East Kalimantan is suitable to be studied as an SPR placement area. It is also geologically safe from disasters and is also located in the middle of Indonesia. East Kalimantan has the Balikpapan oil refinery with the capacity of 260,000 BPD for SPR stock. For SPR funding solution, can use the state budget with a long-term program and designation as a national strategic project.

Another short-term solution for SPR is to use or lease existing oil tankers around the world that are not being used. Should the development of SPR be approved by the government, then the international shipping companies may be able to contribute to its development.

China currently dominates oil tanker shipping in the world, Indonesia can work with China to lease and become Indonesia’s SPR. Actually, this is a good opportunity at the time of the COVID-19 pandemic because oil prices are falling. It would be great if Indonesia could charter some oil tankers and buy fuel to use as SPR. This solution was very interesting while the government prepared long-term planning for the SPR facility. In this way, Indonesia’s energy security will be more secure.

*Dr. Luky Yusgiantoro, governing board member of The Purnomo Yusgiantoro Center (PYC).

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