With energy comes wealth and with wealth comes prosperity! No one can doubt the veracity of this conclusion. But most of the times we forget to scrutinize the “energy” which generates that wealth and societal well-being. For a developing nation state like Pakistan, good infrastructure and plentiful energy are very necessary ingredients to grow and stabilize its economy. A friend in need is a friend indeed. China, the all time friend of Pakistan, showed the act of friendship in April 2015, when President Xi Jinping visited the country to oversee the signing of agreements aimed at building $46 billion (now worth $62 billion) China Pakistan Economic Corridor (CPEC) as a part of his One Belt One Road initiative between Pakistan’s Gwadar Port on Arabian Sea and China’s western region of Xinjiang. This multibillion-dollars project is intended to develop Pakistan’s infrastructure, transportation and very importantly will help the country alleviate chronic energy crisis. The mega project has been declared “a game changer” for Pakistan by its government, but I think that it has been failed in properly analyzing the costs and benefits of the project. There isn’t only a huge monetary cost associated with the economic corridor which Pakistan will bear- as it has to pay back the principal amount of loan with interest, that China is providing her in the name of CPEC, but will also incur hefty environmental cost .
A big portion of total cost of CPEC, nearly $33 billion will be invested in the energy sector of the country. Pakistan’s average demand of electricity (according to the International Energy Agency) is around 19000 MW, while its generation capacity is around 15000 MW, that is, a total energy deficit of 4000 MW. According to IEA’s prediction, by 2025 Pakistan’s per day average electricity demand would reach as high as 45000 MW. To help Pakistan getting out of this serious energy crisis, the multi-billion-dollar economic corridor has numerous power plant projects. Most of the energy which will be generated under CPEC will be from coal fired power plants. $5.6 billion worth of coal power projects are expected to be completed by 2019 in CPEC’s “Early Harvest” projects, but what about the environment?
There are certain compounds (mainly in the form of gas) which trap heat energy in the earth’s atmosphere, keeping the earth’s surface warmer than it would be if they were not present. Such compounds are termed as greenhouse gases. Ability of these compounds to trap heat energy is what causes greenhouse effect. Sun is the main source of heat energy on earth. Greenhouse gases allow sunlight, shortwave radiations, to pass through the atmosphere freely, where some of it gets absorbed by the earth’s surface and the remaining bounces back out towards the space in the form of heat. A portion of this is then trapped by the greenhouse gases present in the atmosphere. It is the shape of these compounds which allow them to trap and then re-emit the heat towards the ground which increases the temperature of the globe. Natural greenhouse effect maintains the temperature of the earth and makes it suitable for the life to exist. It shows that basically these gases have a great role in making the life possible on the earth – without them the average temperature on the earth would be -18 °C! But they become a source of great trouble when their concentration in the atmosphere grows to the level where they cause century-scale rise in temperature of the earth’s climate system, also known as global warming, and as a result of it we observe rise in sea level because of the melting of glaciers and ice caps, extreme weather events like cyclones, droughts and floods, increase in the rate of evaporation which causes extreme rainfalls and snow events around the globe and much more.
You may think what this explanation has to do with Pakistan, CPEC, coal and energy. The biggest problem associated with burning coal is that it releases a number of pollutants and airborne toxins which contribute to climate change and negatively affect human health. Carbon dioxide which is the major output of coal combustion is a forcing greenhouse gas! We call it forcing because it takes many years to leave the atmosphere. Methane also comes in the same category. It is not a by-product of coal combustion but is formed as part of the process of coal formation. Thus it gets released from the coal seam and surrounding disturbed rock strata when coal is mined. China Pakistan Economic Corridor, as I already have mentioned, includes majority of coal-fired power plant projects and with that it also includes project under which 1.57 billion tons of lignite coal will be extracted (3.8 billion tons per annum in first phase as “Early Harvest” stage of the economic corridor) from the allocated area of Block II in Tharparkar.
Sindh Engro Coal Mining Company (SECMC), a joint venture company with the Government of Sindh, Engro Powergen and Affiliates namely, Thal Ltd. (House of Habib), Hub Power Company, Habib Bank Limited, China Machinery Engineering Corporation (CMEC) and State Power International Mendong (SPIM) will be responsible for the extraction of this coal which will be utilized by a mine-mouth power plant (a part of CPEC) having sub-critical power generation technology (emits approx. ≥880g CO2/kWh :Adapted from IEA, Technology Roadmaps, High-efficiency low-emissions coal-fired power generation, 2012) which is being established by Engro Powergen Limited, a Joint Venture Company of Engro Powergen, China Machinery and Engineering Company, Habib Bank Limited and Liberty Mills Limited. Commercial operation date for phase one of both Projects is expected to take place by mid – 2019.
There are total 7 coal-fired power plant projects under “Early Harvest” stage of CPEC. Out of these seven, 2 are currently operational, namely Coal-fired Power Plants at Port Qasim Karachi with generation capacity of 1320 MW and Sahiwal Coal Fired Power Plant with generation capacity of 1320 MW . Both are based on super critical technology which is efficient Up to 42%, emits 800-880g CO2/kWh and consumes 340-380g of coal per kWh. Other then these 2 plants 5 are either under construction or still need approval.
Engro Thar Block II 2×330MW Coal fired Power Plant (already discussed in paragraphs above), TEL 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II and ThalNova 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II which are collectively classified as Thar Block- II Coal Power Projects is currently under construction. This power station will use sub-critical power generation technology.
Sino Sindh Resources Limited (SSRL) Thar Coal Block-I Mine Mouth Power Plant (under-construction) , with generation capacity of 1320 MW will also have sub-critical power generation technology which is in general efficient up to 38% , emits ≥880g CO2 (Carbon dioxide) per kWh and consumes ≥380g of coal per kWh. These figures are same for all coal-fired power plants which use sub-critical technology. 6.5 million tons of coal per annum will be extracted from Block I of Thar coal mine. Never-ending hunger of coal!
China Power Hub Generation Company 1,320MW Coal-Fired Power Plant in Hub, Balochistan (needs approval of the provincial government of Balochistan) will have super-critical technology installed which is efficient Up to 42%, emits 800-880g CO2/kWh and consumes 340-380g of coal per kWh. Again, these figures are same for all coal-fired power plants based on super critical technology. Thar Mine Mouth Oracle Power Plant, with generation capacity of 1320 MW was elevated to the priority list of projects under the China-Pakistan Economic Corridor (CPEC) in June 2017 but is still in pre-permit development stage.
It is crystal clear that Pakistan’s romance with coal has no place for the environment. Seven priority coal-fired power projects, out of which two are currently operational and very soon all will together be polluting the environment with tons of carbon dioxide being emitted. Furthermore, coal extraction from Thar coal mines block I and II will pump bulk of methane into the atmosphere and altogether both power generation and mining projects will contribute to increased greenhouse effect in Pakistan. It shows that the environmental cost of the economic corridor is much more than its economic gains. Indeed a bitter truth. Most shocking part of the story is that China itself is putting more focus on renewable energy resources for its electricity demands but pushing Pakistan towards a fossil-fuel dominant energy structure. In 2017, China eliminated or suspended 65 gigawatts (GW) of coal-fired capacity which exceeded the national target of 50 gigawatts! The country has vowed to improve its notorious air pollution and upgrade its coal based energy structure by reducing coal consumption and boosting clean energy use.
According to the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5), global greenhouse gas (GHG) emissions have accelerated to an unprecedented level. The report indicates that in 21st century the global average temperature is likely to increase by 0.3°C to 1.7°C for their lowest emissions scenario, and 2.6°C to 4.8°C for business as usual carbon intense emissions. According to the report, to limit the global average temperature by 2°C, global GHG emission must have to be curtailed by 40 to 70 percent. High rate of carbon dioxide and methane emission from coal combustion and mining is posing a greater risk to the climate of Pakistan than ever before. Greenhouse gas inventory of Pakistan for the year 2011-12 show that the total carbon dioxide emission was 369 million tons of carbon dioxide equivalent (MtCO2e) . 45.9% of the total CO2 emission was contributed by energy sector, 44.8% from agriculture and livestock sector, 3.9% by industrial procedures and 2.6% from forestry sector. The situation is alarming! 90.7 % of the total emission bulk comes from energy and agricultural sector.
Now that you know greenhouse gases traps heat energy and when they re-emits it back toward the surface of the earth, results in the increase in average temperature, which we also called greenhouse effect. This effect is very prominent in Pakistan. According to the Asian Development Bank’s 2014 report, namely “Assessing the Cost of Climate Change and Adaptation in South Asia – Manila”, in the last century, warming trend of 0.57°C in the annual mean temperature was observed from 1901 to 2000 in Pakistan. From 1961 to 2007, an increase of 0.47°C, which was more accelerated, observed. According to the 2009 Technical Report by Pakistan Meteorological Department, winters got more affected as the average winter temperature for increased from 0.52°C to 1.12°C (province to province variation) . Highest increase in winter temperature was observed in the province of Balochistan. From 1960 to 2007, the average annual temperature in Pakistan got increased by 0.87°C (max) and 0.48°C (min) . The fact that winter temperature is increasing in all four provinces of Pakistan and that mean annual temperature showed an increasing trend, that is, increased by 0.57°C in 20th century makes it clear that greenhouse effect is very prominent in Pakistan and don’t forget to take into account the accelerated trend of warming, a rise of 0.47°C, from 1961 to 2007. Increasing winter temperature means more summer (warm days).
According to the Global Change Impact Studies Centre’s 2005 Final Technical Report for APN CAPaBLE Project , the annual and seasonal trends in the average annual temperature in different climatic zones of Pakistan from the year 1951 to 2000 are as follows : A) the average annual temperature has been increasing in most parts of the country. B) all the regions show an increasing trend for the pre-monsoon summer months (April-May). C) The Balochistan Plateau is getting hotter in all the seasons.
Increasing temperature affects water cycle in negative ways. A warmer climate means more evaporation from land (soil moisture) and water bodies (rivers, lakes, sea and oceans), thus it results in a rise in moisture holding capacity of the atmosphere, and when a storm passes through a warmer region holding more water, we witness heavy rainfall (an atmosphere with more moisture can produce more intense precipitations events, which is exactly what has been observed). For each degree rise in temperature, the moisture holding capacity of air goes up by 7%. Heavy precipitation doesn’t mean an increase in total rainfall over a season or over a year. This simply indicates a decrease in moderate rainfall, thus an increase in the length of dry periods. Moisture holding capacity of the atmosphere increases with increasing temperature but it doesn’t mean that increased moisture will fall evenly all over the country; rather some zones will see more extreme rainfalls while other areas will see less due to shifting weather patterns and other factors. Most immediate impact of heavy rainfall is the prospect of flooding. According to the statistics mentioned in Asian Development Bank’s 2013 report, namely, “Indus Basin Floods: Mechanism, Impacts and Management. Manila” , the super flood of 2010 in Pakistan, alone resulted in over 1,600 casualties. Furthermore, it inundated an area of 38,600 square kilometers and caused damage worth USD 10 billion! In addition to flooding, intense rainfall also increases the risk of landslides. When above-normal downpour increases the water table and saturates the ground, it results unstable slopes, causing a landslide. According to 2014 “Climate Change and Infrastructure, Urban Systems, and Vulnerabilities: Technical Report for the US Department of Energy in Support of the National Climate Assessment. Island Press”, heavy rainfall-induced landslides in mountainous urban centers have been observed in Pakistan.
Global Change Impact Studies Centre’s 2005 Final Technical Report for APN CAPaBLE Project says that annual precipitation has been increased by 61 mm in Pakistan from 1901 to 2007. Monsoon rains increased by 22.6 mm and winter precipitation got raised by 20.8 mm. The report summarized that annual precipitation has generally been increasing except coastal areas.
With increase in global temperature, it is observed that oceans are expanding (thermal expansion) and glaciers are melting, thus it results in global mean sea level rise. Intergovernmental Panel On Climate Change (IPCC) Fifth Assessment Report (AR5) says that global mean sea level rose to 0.19 meter over the period of 1901-2010. Sea level rise for Pakistan is estimated at 1.1 millimeter per year from 1856 to 2000 along the coast of Karachi (Arabian Sea coast). (Source: The Impact of Sea Level Rise on Pakistan’s Coastal Zones – In a Climate Change Scenario. 2nd International Maritime Conference at Bahria University, Karachi). According to IPCC’s fifth Assessment Report (AR5), mean sea level rise of 0.2 – 0.6 meter will be observed by the end of 21st century. Of course it will affect low-lying coastal areas of Karachi. Inundation of low-lying coastal areas, destruction of mangrove forests and reduction in fish and shrimp productivity (mangroves are breeding grounds for fishes and shrimps).
Let us now see the effects of climate change due to increased greenhouse effect (because of greenhouse gases emission, especially carbon dioxide and methane from coal-fired power plants and coal mining under CPEC respectively) on different sectors of Pakistan. Because of increase in annual mean temperature and precipitation, agriculture sector will be affected the most. Pakistan’s economy is agro-based, and it contributes 21% to the total GDP of the country. According to a report produced by World Wild Fund for Nature (WWF) Pakistan, by 2040, a rise in temperature (0.5°C to 2°C), agricultural productivity will decrease by 8-10 percent.(Source: A. Dehlavi et al. 2015. Climate Change Adaptation in the Indus Ecoregion: A Microeconometric Study of the Determinants, Impacts, and Cost Effectiveness of Adaptation Strategies. Islamabad: World Wide Fund for Nature (WWF) Pakistan). A study has shown that there will be a 6% decrease in wheat yield and 15 to 18% decrease in the yield of basmati rice will be observed across the country (except northern areas) by 2080. (Source: M. M. Iqbal et al. 2009. Climate Change Aspersions on Food Security of Pakistan. Science Vision. 15 (1). Islamabad.)
Due to increased greenhouse effect, increased recession of Hindu Kush- Karakoram- Himalayan (HKH) glaciers is observed. This will affect river flows in Indus River System. As Himalayan glaciers will be melting for next 50 years, water flow will raise in Indus River, but after that, because of no glacier reservoirs, flow will decrease substantially by 30 to 40 percent over the next 50 years. (Source: K. Hewitt. 2005. The Karakoram Anomaly? Glacier Expansion and the ‘Elevation Effect’, Karakoram Himalaya. Inner Asia. Mountain Research and Development: Special Issue – Climate Change in Mountains. 25 (4).). This variation won’t just affect the availability of water in upper and lower Indus but will also hit Pakistan’s overall agricultural sector. Increasing number of floods due to increase in heavy precipitation in the form of rain because of greenhouse effect, results in high sediment inflows in artificial water reservoirs (dams) and therefore reduces storage capacity.
Greenhouse gases emission from coal-fired power plants and coal mines, which are and will increase greenhouse effect (increase temperature) will affect the energy sector as well. Hotter temperatures will increase energy demands (increase in air-conditioning requirements) in summers and as a result more dirty energy from coal will be generated and thus more greenhouse gases emission. Himalayan glaciers are melting because of high annual mean temperature, which will reduce the availability of water for hydropower generation. Floods as a result of heavy precipitation will damage power plant infrastructure. Increased atmospheric temperature increases the temperature of water bodies. Nuclear and coal-fired power plants use water for cooling purpose. Not so cool water won’t be effective for cooling purpose, thus the efficiency of these plants get reduced.
System of transportation also gets affected by greenhouse effect. Heavy precipitation events cause flooding. Because of old infrastructure of road railways and airports extreme weather events affect their quality. Landslides (as discussed before) affect mountainous transportation.
Mining of coal in Thar Block II by SECMC (Sindh Engro Coal Mining Company- as discussed above), is done by open pit mining procedure because the coal is buried inside layers of ground water . Therefore, the water has to be pumped out of the mines and then it has to be stored somewhere. SECMC has planned to build an effluent disposal reservoir (near Gorano village) in which this waste water will be stored for two and a half years (or more). In 2016, people living in this area protested to stop the construction of reservoir. The waste water will contain Total Dissolved Solids (TDS) , the quantity of which is around 5000 ppm, which is much higher than the World Health Organization (WHO) standards, that sets the maximum contaminant level for TDS at 1000 ppm. People of Gorano village are worried about the seepage from this reservoir, that will possibly damage the quality of the underground water which is being used by them for drinking, farming and other daily life purposes. Furthermore, coal mines puncture and drain groundwater reservoirs in its vicinity and thereby depriving communities living around from the precious natural resource – water! Before burning coal, it is washed to clean it from impurities. This wastewater, full of harmful toxins has to be disposed off somewhere. In Pakistan where no one cares about following rules and regulations, this water could end up being disposed in nearby lakes and rivers. On one hand it makes the water undrinkable and on the other, destroys fresh water habitat.
Combustion of coal not only pollutes air with carbon dioxide, but also with other harmful pollutants, which negatively affect human health. Mercury emissions from coal fired power plants damage nervous, digestive and immune system in human beings. 1/70th of a teaspoon of mercury deposited on a 25-acre lake can make fish unsafe to eat. Sulfur dioxide (SO2), which is produced when sulfur in coal reacts with oxygen, when reacts with other molecules in atmosphere it produces acidic particulates. When these particulates are inhaled they can cause asthma and bronchitis. Sulfur dioxide is also responsible for acid rain! These plants also emits nitrous oxides (NOx), which when inhaled can cause irritation of lung tissues and make the inhaler susceptible to chronic respiratory diseases like pneumonia and influenza.
Coal ash, which is the by-product of coal combustion and contains concentrated heavy metals, including many known carcinogenic and neurotoxic chemicals, is either buried underground or stored in open reservoirs. During heavy precipitation event, this highly toxic ash mixes with water that runs off into nearby fresh water bodies and pollutes them.
So what is the ultimate purpose of CPEC? At such hefty environmental cost, all that economic prosperity becomes meaningless. You are digging in the land of Thar for coal and at the same time depriving the communities living there of fresh water! Because of greenhouse effect, Himalayan glaciers are melting which is affecting water flow in Indus river system has been affected, crop yields are reducing, people are dying from extreme weather events like floods, droughts and heat waves, coastal land is inundating due to sea level rise, transport infrastructure is being destroyed by heavy precipitation and people are inhaling polluted air and drinking water full of carcinogenic and neurotoxic pollutants because we want energy form coal! World is progressing. Countries, including China are reducing their fossil fuel energy infrastructure and boosting the use of renewable energy resources. Protecting climate is necessary. For Pakistan burning coal for energy is like firing your own house for some heat! Stop it! Stop burning coal!
- K. A. Mir and M. Ijaz. 2015. Greenhouse Gas Emissions Inventory of Pakistan for the Year 2011–2012. GCISC-PR-19. Islamabad: Global Change Impact Studies Centre (GCISC).
- M. Ahmed and S. Suphachalasai. 2014. Assessing the Cost of Climate Change and Adaptation in South Asia. Manila: Asian Development Bank.
- Global Change Impact Studies Centre. 2005. Final Technical Report for APN CAPaBLE Project. Islamabad. http://www.gcisc.org.pk/2005-CRP01-CMY-Khan_CAPaBLE_FinalReport.pdf
- Q. Z. Chaudhry et al. 2009. Climate Change Indicators of Pakistan. Technical Report. No. 22.Islamabad: Pakistan Meteorological Department.
- T. J. Wilbanks and S. Fernandez. 2014. Climate Change and Infrastructure, Urban Systems, and Vulnerabilities: Technical Report for the US Department of Energy in Support of the National Climate Assessment. Island Press.
- Global Facility for Disaster Reduction and Recovery. 2011. Climate Risk and Adaptation Country Profile. Washington DC: World Bank.
- Dehlavi et al. 2015. Climate Change Adaptation in the Indus Ecoregion: A Microeconometric Study of the Determinants, Impacts, and Cost Effectiveness of Adaptation Strategies. Islamabad: World Wide Fund for Nature (WWF) Pakistan.)
- M. M. Iqbal et al. 2009. Climate Change Aspersions on Food Security of Pakistan. Science Vision. 15 (1). Islamabad.)
- K. Hewitt. 2005. The Karakoram Anomaly? Glacier Expansion and the ‘Elevation Effect’, Karakoram Himalaya. Inner Asia. Mountain Research and Development: Special Issue – Climate Change in Mountains. 25 (4).
Trans-Caspian Gas Pipeline – An ‘apple of discord’ between Azerbaijan and Russia?
A broad range of strategic, economic and cultural ties between Azerbaijan and Russia create an illusion of quite stable bilateral relations between the states. Nevertheless, considering the recent geopolitical developments in the South Caucasus after the Second Karabakh war and the growing role of Azerbaijan as both producer and transit hub for natural resources, one can assume that there is a prospect of growing uncertainties that may or already generate tensions. These tensions can be observed in the context of energy diplomacy, used as a strategic tool by both states to gain access to, and consolidate within external markets. This article summarizes the potential and existential rivalry perspectives between Azerbaijan and Russia in terms of integration to the EU energy market via their gas pipelines, particularly cleavages over the Trans-Caspian Gas Pipeline.
European Energy Union: Tendencies in the gas market
The concept of the ‘energy union’ has been developed during the presidency of Jean-Claude Juncker and extends to five dimensions. The following two dimensions are relevant in the context of relations with external markets: 1. Security, solidarity and trust; and 2. Energy efficiency. The former promotes cooperation between EU member states implying energy security and diversification of the energy sources. The latter, on the other hand, emphasizes the need to reduce dependency on imports and stimulate local growth in energy sectors. Both strategies consider a long-term perspective aimed at creating an independent and self-sufficient energy market within the framework of environmental standards. To determine whether these strategies managed to diversify and simultaneously ensure independence from external actors in the European gas market, let us recall the statistical data of imports and local gas production in the EU over the last years.
Tendencies in the EU energy market over the last couple of years, particularly in the sector of gas, reveal its high dependence on imports from abroad. Although the net gas imports fell by 7 per cent in 2020 amounting to 81 bcm, the overall EU production of gas fell by almost 23 per cent (16 bcm). According to the Quarterly Report of the Union, the local gas production in the first quarter of 2021 reached the second-lowest production rate over the last decade, falling by 11 per cent respectively. In this regard, the European internal energy market needs a sustainable supply of natural gas resources, mostly, for residential heating needs. Currently, about 44% of extra EU net gas imports are piped via Russian pipelines, 12% through Algeria, and 1,2% through TAP pipeline. Although import indicators suggest that Russia holds the dominant position in supplying the EU energy needs, the ever-growing gas supplies from Azerbaijan cause concerns on the part of Russian stakeholders. Accordingly, in 2020, Gazprom’s supplies to the Turkish market decreased by 72% compared to March 2019, the Russian RBK reports. Could the further steps of the official Baku on the European energy front challenge positions of the Russian energy giant Gazprom? To answer this question, it is necessary to briefly present the already launched and planned projects in which Azerbaijan is directly involved.
Azerbaijan’s ‘energy diplomacy’ and Russia’s counterstrategy
In 2020 South Gas Corridor (SGC) project officially started operating, connecting three sub-pipeline routes: South Caucasus Pipeline Expansion (SCPX), the Trans-Anatolian Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP). The project aims to ensure commercial gas delivery from Shah Deniz field to Turkey, continuing to European markets and finally landing in Southern Italy (Melendugno). The initiative was supported by numerous financial institutions and stakeholders from Asia and Europe such as the Asian Development Bank (ADB) and the European Investment Bank (EIB). According to the estimates, the current gas supply via the corridor is amounting to 10 billion bcm.
At the 7th Ministerial Meeting of the SGC Advisory Council, the president of Azerbaijan Ilham Aliyev noted the necessity of strengthening bilateral as well as multilateral energy relations and mentioned the Memorandum of understanding between Azerbaijan and Turkmenistan: “[…] That will also be very helpful for future energy cooperation in the Caspian Sea and beyond”. President Aliyev has also emphasized that Azerbaijan already has become a reliable transit of energy resources from the eastern shores of the Caspian Sea. In this regard, the recent intensification of talks upon the realization of the Trans-Caspian Gas pipeline project is not surprising.
Within the framework of the Trans-Caspian gas pipeline project, natural gas will be delivered from the port of Turkmenbashi via the pipeline to the Sangachal terminal through the Caspian Sea with an annual capacity of 32 billion bcm. However, despite numerous attempts to bring the issue to the agenda both by the Western partners (EU and the United States) and Azerbaijan, there have been no significant steps towards the implementation of the project. The reason for the constant extension of negotiations over the last two decades may be both the reliability of the capabilities of the Turkmen natural gas resource pool, and external intervention in the negotiation process and attempts to discredit it by Russia and Iran.
Firstly, the credibility of the Turkmen gas supply capacity is quite questionable. After the Central Asia-China gas pipeline opened in December 2009, Turkmenistan has gradually become the biggest gas supplier to the Chinese energy market in Central Asia. Currently, Turkmenistan covers nearly 60% of China’s pipeline gas imports, whereas over 90% of Turkmenistan’s overall exports are gas exports to the Chinese energy market. Therefore the sufficiency of Turkmenistan’s gas reserves for the Trans-Caspian pipeline is still a matter of discussion. The official Ashgabat in the meantime refrains from specifying details on its capabilities.
Another challenge is posed by the joint attempts of Russia and Iran, circumvented by the pipelines, to prevent the realization of the initiative, to protect their local energy markets. Additionally, the Kremlin needs to eliminate any potential external supplier of natural pipeline gas to the EU, to sustain the status quo. Turkmenistan has already become the biggest gas supply hub in Central Asia and the prospect of its expansion towards Europe poses a strategic challenge to Russia.
“Along with the new Iranian gas pipeline, the Chinese export route gave Turkmenistan strong leverage that strengthened its ability to bargain with Russia. However, these export routes do not hurt Russian interests that much, since Moscow’s main objective at the moment is to keep Turkmen gas away from the lucrative European energy market”. (Vasánczki 2011).
Both Russia and Iran refer to environmental damage the pipeline could cause in the Caspian Sea, and recall the so-called Tehran Convention (the Framework Convention for the Protection of the Marine Environment of the Caspian Sea). However, the experience with the SGC and other pipeline projects in the region suggest no environmental crisis to be expected. On the other hand, there are allegations regarding the long-disputed Legal Status of the Caspian Sea. Moscow and Tehran are aligned in their concerns about the extraction and transportation of energy resources and believe that such issues should be resolved within the framework of five Caspian states.
According to Marco Marsili, the Russian energy strategy is inclined in a “Grand Strategy” aimed at re-establishing a sphere of influence in the area previously controlled by the USSR. As he further notes in his article: “If the Trans-Caspian Gas Pipeline comes to fruition, then it will also further enhance Azerbaijan’s status as both a producer and transit hub. Additionally, the pipeline will diminish Moscow’s influence in the region and circumvent both Russia and Iran. This is why Moscow is heavily opposing the project.”
When it comes to the European front Russian strategy faces various burdens. On the eve of the opening of the Nord Stream 2 gas pipeline, Russian-European relations are in a state of long-term crisis. The persecution and assassinations of political dissidents, the imprisonment of the head of the opposition movement Alexei Navalny, support for the authoritarian regimes of Lukashenko and Assad, as well as multiple attempts to interfere in elections within the EU, reduce the level of trust between the Kremlin and the West on energy security too. Furthermore, gas supply issues between Russia and Ukraine in 2006 and 2009 that caused the European energy crisis, exacerbated the situation and gave a signal to the EU to diversify its gas supplies.
Nord Stream 2 is a controversial 9.5 billion euros worth gas pipeline that will annually supply the EU with 55 bcm. According to sceptics, the new pipeline not only endangers the energy security of the EU, putting it in a dependent position from Gazprom but also causes dissatisfaction in Eastern European countries (in particular Ukraine). Germany and the US have already issued a joint statement in July to support Ukraine, European energy security and climate protection. Azerbaijan, in turn, is ready to provide the diversification tool needed and security of natural gas delivery to the European market without polarizing the European community on geopolitical issues.
Opportunities for Azerbaijan in the new era in South Caucasus geopolitics
After the second Nagorno-Karabakh war between Azerbaijan and Armenia, the power constellations in South Caucasus have drastically changed in almost 44 days. Azerbaijan has restored its territorial integrity and opened up new opportunities for economic growth, and increased mobility via the development of transport hubs and infrastructure rehabilitation projects. At the same time, Russia has deployed its peacekeeping contingent in the region, ‘formally’ securing its status as a regional power. Despite this, Azerbaijan, after almost three decades being focused on resolution of devastating conflict, can now set new forign policy priorities to provide energy security and strengthen its cooperation with the EU.
With the EU Strategy on Central Asia adopted in May 2019 and the intensification of negotiations between the Central Asian countries with the EU and with the Western hemisphere as a whole, there is a need for such projects as the Trans-Caspian Gas Pipeline. In these circumstances, Azerbaijan can play the role of a mediator both in the negotiation process and directly participate in the implementation of the project. Taking this into account, Russia fears the loss of its role as a hegemon both in its relations with Central Asia and within the South Caucasus. Also economically, it is in Russia’s interests to keep the monopoly in the hands of its state-owned companies to strengthen the leverage on the EU in cases of geopolitical collisions.
In any case, the growing competition on the EU energy market between the two former Soviet states could significantly diminish the sense of mutual reliability between them.
China’s Unorthodox Intervention in the Global Oil Market
Apparently, China has been the talk of the town for quite some time. While the entire yesteryear passed in a flurry of blame game over the pandemic, this year has been nothing short of a blessing for Xi’s regime. However, while China rapidly compensated for the drastic slump last year, the bustling economy has now cooled down – though a bit prematurely. Due to the expansive outbreak of the delta variant, China – like most countries around the world – now faces surging inflation and a crippling shortage of raw materials. However, while one might get a bolder vibe from China’s recent crackdown on industrial giants, the supposed ‘Second Cultural Revolution’ seems on a divergent path from the government’s latest aspirations for the domestic industry.
China seems to be on a path to harness growth that appears to be slowing down as the global economy battles uncertainty. However, while many expected China to take orthodox measures to prolong growth, hardly anyone expected a drastic change of strategy: intervening in a close-knitted global market like never before.
China recently posted its most robust trade surplus in history, with a record rise in exports jumping 25.6% from last year to stand at $294.3; $10 billion more than any previous month. However, while the glowing figures imply sturdiness, the underlying fragility of the Chinese economy is not disguised. In the past few months, China’s production engine has taken a toll as surging energy costs have inhibited production capacity. The factory-gate inflation stands at a 13-year-high which has forced factories to cut output. Amid declining domestic demand due to covid restrictions, manufacturing surveys show that China’s export orders are eroding as supply bottlenecks coupled with energy costs have weighed heavily on the production function. To counter the problem, China recently supplied its reserves into the domestic market; undercutting the surging global price tag dictated by the petroleum giants.
Last Thursday, China’s National Food and Strategic Reserves Administrator made a press release, confirming that the world’s second-largest economy tapped into its crude reserves – estimated at 220 million barrels – to “ease the pressure of rising raw material prices.” While China is known to intervene in commodity markets by using its strategic reserves, for example, Copper, Aluminium, or even grains.
Recently, China tapped into its national reserves to intervene in the global commodity market of industrial metals for the first time since 2010. The intervention was situated as a release to normalize surging metal prices and retain domestic manufacturers’ margins. However, it is a novelty that a national agency confirmed an active supply of petroleum buffer via an official press conference. And while no additional details were offered, it is presumed by global strategists that the press release referred to the 20-30 million barrels allegedly poured into the domestic industry around mid-July: when Xi’s government offered to supply crude to the OPEC.
Furthermore, China’s Stockpile Agency claimed that through open auctions, China’s reserve crude was intended to “better stabilize the domestic demand and supply.” It was apparent that as China ventured through a supply crunch when Brent Crude – Global Crude Index/Benchmark – breached the $76 bpd mark, the country instead resorted to utilizing its own stockpile instead of relying on expensive imported petroleum. Thus, it shapes a clear picture of how China managed to clock a phenomenal trade surplus despite not importing its usual crude quota.
While it is common knowledge that economies like the US and Europe maintain strategic petroleum reserves, the buffers held by China were utilized to actively manipulate the price in a ‘normalized’ oil market instead of their designated usage in supply crunches or wars. The situation today is anything but critical for the oil market to warrant such an intervention. As OPEC+ has boosted its output by 400,000 bpd starting August, output has bloomed beyond its peak since the price war back in April 2020. While the oil market is still well below the output capacity, mutually curbed by the OPEC+ alliance, the demand is still shaky and an equilibrium seems set. Yet, when we observe China – the world’s largest oil importer – we extricate reason that despite a growing economy, China continues to experience massive shortages: primarily in terms of oil, gas, coal, and electricity.
Furthermore, with the ensue of Hurricane Ida, massive US crude reserves have been wiped which has majorly impacted China as well. The US and China rarely stand on the same page on any front. However, even the White House recently asked OPEC to pump more crude into the market due to the rising gasoline prices in America. The same scenario is panning in China as energy shortages have led to surging costs while domestic demand is diminishing. The brunt is thus falling on the national exchequer: something China is not willing to haggle. While it is highly unorthodox of China to explicitly announce its intervention, many economists believe that it was a deliberate move on part of China’s communist brass to amplify the impact on the market. The plan seemingly worked as Brent fell by $1.36 to stand at $71.24 on Thursday.
If China’s commitment to normalize domestic energy prices is this significant, it is highly likely that another intervention could be pegged later in the fourth quarter. Primarily to counteract the contraction in export orders by cutting imports further to maintain a healthy trade surplus. In my opinion, it is clear that both the US and China are not willing to let Brent (and WTI) breach the $70-$75 bracket as key industries are at stake. However, while one takes a passive approach, the other is touted to go as far as pouring another 10-15 million barrels of crude by the end of 2021. Yet revered global commodity strategists believe that the downturn in prices is “short-lived” just like any other Chinese intervention in a variety of other commodity markets globally. And thus, experts believe that the pump is simply “not enough physical supply” to quite strike a permanent dent in an inherently flawed market mechanism.
Energy Forum Seeks To Analyze Africa’s Energy Potentials And Utilization
African Energy Week (AEW) 2021 in Cape Town, fully endorsed by the Government of South Africa, is committed to accelerating Africa’s energy growth with the aim of establishing a secure and sustainable energy future for every individual on the continent. Accordingly, AEW 2021 firmly believes in the role that oil and gas will continue to play in Africa and will emphasise the continent’s upstream market through a collaborative, International Oil Company (IOC) forum. Led by IOC executives, as well as government representatives from notable energy markets in Africa, the IOC forum aims to address the upstream challenges faced in Africa, providing solutions and strategies to drive exploration and make Africa more competitive for investment.
With the discovery of sizeable oil and gas reserves across the continent in recent years, regional and international explorers are turning an eye to the world’s final frontier market – Africa. Nigeria’s 200 trillion cubic feet (tcf) of gas reserves and 37.2 billion barrels of oil (bbl); Mozambique’s 11 tcf of gas; Senegal’s 450 billion cubic meters of gas; Libya’s 48 billion bbl and 53.1 tcf; and Egypt’s 77.2 tcf of gas have all made Africa the ideal destination for hydrocarbon exploration. What’s more, with many African countries making significant steps to enhance their regulatory environments, implementing legislation to create an enabling environment for investment, the continent has become a highly competitive market for exploration and production. Nigeria’s recently implemented Petroleum Industry Bill, Gabon’s new Hydrocarbon Code, and Angola’s inclusive petroleum regulation, to name a few, have all ensured a competitive and highly attractive market.
With the world’s six oil ‘supermajors’ – BP, Chevron, Eni, ExxonMobil, Royal Dutch Shell and TotalEnergies – all actively present in mature and emerging markets across Africa, the continent has become an upstream hotspot. AEW 2021 aims to accelerate this trend, promoting new upstream opportunities and ensuring both National Oil Companies (NOC) and IOCs drive the continent into a new era of energy and economic success. Accordingly, Africa’s premier energy event will host an upstream-dedicated IOC forum in Cape Town, led by IOC executives and government representatives. The IOC forum aims to address key challenges in Africa’s upstream market, whereby the diverse speaker panel will offer up solutions to expand exploration and production, while ensuring the continent remains competitive for investment in a post-COVID-19, energy transition era.
In addition to the discussion on upstream activities, the forum aims to highlight the role of IOCs in enhancing capacity building, whereby emphasis will be placed on IOC-NOC collaboration. IOCs have a critical role to play in Africa, not only regarding resource development, but human capital and local business development. In order for the continent to become truly sustainable and competitive, NOCs require support from IOCs. Accordingly, the forum aims to identify strategies to enhance cooperation and partnerships, with IOCs taking the lead in Africa’s energy development.
“AEW 2021 in Cape Town will offer a real discussion on Africa. Oil and gas are critical in Africa’s development and the African Energy Chamber (AEC) will not succumb to the misguided narrative that Africa should abandon its potential. The IOCs in Africa have demonstrated the continent’s potential, and by sharing strategies to enhance growth, address challenges, and accelerate upstream activities, they will be key drivers in Africa’s energy future. The IOC forum will not only offer a description of African reserves, but will provide clear, attainable solutions to exploitation, exploration and production with the aim of using energy to enact stronger economic growth. By coming to Cape Town, attending the IOC forum, and interacting with African ministers from across the continent, you will be able to be a part of Africa’s energy transformation,” stated NJ Ayuk, Executive Chairman of the AEC.
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