Connect with us

Energy

CPEC: The not so cool COAL corridor

Published

on

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!

Sources:

Columnist, blogger and social activist. Studying Economics and International Relations. My writings on socioeconomic issues, foreign affairs and culture frequently get published in DAILY TIMES, ARY NEWS Blogs and DUNYA NEWS Blogs. Twitter: @an_alisalman

Continue Reading
Comments

Energy

Hydrogen Could Be A Key Player In The Recovery And Resilience Plan

Published

on

Thanks to the contribution of vaccines, the Covid-19 pandemic is slowly beginning to abate and gradually lose its aggressiveness, with the consequent reduction of its impact on people’s health worldwide.

However, while the health effects of the pandemic appear to be fading, the negative economic effects of a year and a half of lockdown and forced closure of many businesses are being felt heavily at a global level and seem bound to last well beyond the end of the health emergency.

With a view to supporting and encouraging the “restart” and revival  of the economy, the European Union has launched a “Recovery and Resilience Plan”, allocating a huge amount of funds that shall be used in the coming years not only to help countries in difficulty with contingent measures, but also to stimulate economic and productive growth capable of modernising production models with specific reference to environmental balance, which is increasingly facing a crisis due to the use of non-renewable, highly polluting energy sources.

Italy will receive over 200 billion euros in European funds to develop its own projects to get out of the economic-pandemic crisis and rightly wants to use them not only to plug the leaks caused by the various ‘lockdowns’ in the national productive fabric, but also to implement a series of strategic projects capable of making not only the productive sectors, but also the public administration and the health and judicial systems more efficient.

In short, the “Recovery and Resilience Plan” that is currently coming to the fore may prove to be a powerful driving force for Italy’s development and modernisation.

The projects submitted by Italy to the EU institutions include an initial allocation of over 200 million euros – out of the 47 billion euros planned for the next decade – to promote research and development in the field of renewable energy and particularly in the hydrogen sector.

Why Hydrogen?

Hydrogen is potentially the most abundant source of “clean” energy in the universe. It is versatile, safe and reliable; when obtained from renewable energy sources, it produces no harmful emissions to the environment.

Nevertheless, it is not available in nature in its gaseous form – which is the only one that can be used as an energy source – as it is always bound to other elements, such as oxygen in water and methane as a gas.

The traditional processes used to “separate” hydrogen from oxygen in water and from methane use up large amounts of electricity, which makes the processes not only very expensive, but also highly polluting, with the paradox that, in order to produce a clean energy source, the environment is “polluted” anyway, especially if – as has been the case until recently – the electricity needed is produced with traditional non-renewable energy sources (coal, gas and oil).

The best source of hydrogen in gaseous form is the sea. Electrolysis can easily separate hydrogen from oxygen and store it in gaseous form for use as an energy source.

The electrolytic cells used to develop the process use up large amounts of energy and, fortunately for us, science is finding a way to produce it without polluting, using solar, wind and, above all, sea wave energy.

The use of marine energy creates a sort of “circular economy” for hydrogen production: from the practically inexhaustible primary source of ocean water, hydrogen can be extracted with the energy provided by wave and tidal motion.

Forty per cent of the world’s population live within 100 kilometres from the sea and this shows the potential of sea wave and tidal energy as an engine for sustainable development in economic, climate and environmental terms.

Nowadays modern, non-invasive tools are available to extract electricity from sea waves, such as the “penguin”, a device manufactured in Italy, which – placed 50 metres deep – produces electricity without harming marine flora and fauna.

Another example of Italian scientists’ intelligence and creativity is the Inertial Sea Wave Converter (ISWEC), a device housed inside a 15-metre-long hull which, occupying a marine area of just 150 square metres, is able to produce 250 megawatts of electricity a year, thus enabling to cut emissions into the atmosphere by 68 tonnes of CO2.

With these devices and the other ones that technology will develop over the next few years, it will be possible to power electrolytic cells for the production of hydrogen in gaseous form on an industrial scale, at levels that – over the next 15 years – will lead to the production of at least 100,000 tonnes of “green” hydrogen per year, thus enabling to reduce air pollution significantly, with positive effects on the economy, the environment and the climate.

In the summer of 2020, the European Union launched a project called the “Hydrogen Strategy”, with a funding of 470 billion euros, intended for research and production projects capable of equipping EU countries with electrolysis tools to produce at least one million tonnes of “green” hydrogen by the end of 2024.

The fight against CO2 emissions continues unabated: in the United States which, after Trump’s Presidency, has reaffirmed its commitment to reducing emissions; in China which, in its latest five-year plan, has forecast a 65% reduction in carbon dioxide emissions into the atmosphere by the end 2030; in Europe, which has always been at the forefront in the creation of devices for producing wave and tidal energy and exports its technologies to the United States, Australia and China.

According to the Hydrogen Council, an association of over 100 companies from around the world that share a common long-term vision for a transition to hydrogen, in the future Europe and China will compete and cooperate in the production of sea wave and tidal energy and in the related production of “green hydrogen”.

With its 14th five-year plan, China, in particular – after having been for decades, during its whirling economic development, one of the main sources of CO2 emissions into the atmosphere and of global pollution – has undertaken the commitment “to develop and promote the harmonious coexistence between man and nature, through the improvement of efficiency in the use of resources and a proper balance between protection and development”, as clearly stated by its Minister of Natural Resources Lu Hao.

It might sound like the sweet-talk and set phrases of a politician at a conference.

In the case of China and its Minister of Natural Resources, however, words have been turned into deeds.

As part of the Roadmap 2.0 for Energy Saving Technology and New Energy Vehicles, China has set a target of one million fuel cell vehicles and two million tonnes of hydrogen production per year by the end of 2035.

The China Hydrogen Energy Industry Development Report 2020 forecasts that, by the end of 2050, hydrogen energy will meet 10 per cent of energy requirements, while the number of hydrogen fuel cell vehicles will rise to 30 million and hydrogen production will be equal to 60 million tonnes.

With a view to giving substance to these prospects, China has established the “National Ocean Technology Centre” in Shenzhen and developed – with the Italian “International World Group” – the “China-Europe cooperation project for energy generation and hydrogen production from sea waves and from other renewable energy sources”.

These are concrete projects in which – thanks to Italian creativity and Chinese rationality and pragmatism – we must continue to invest and work, not least to give the third industrial revolution a cleaner face than the coal-stained one of the second industrial revolution.

These projects appear to be in line with those envisaged both at European and Italian levels by the ‘Recovery and Resilience Plan’, which should guide us out of the economic doldrums of the pandemic. They deserve to be financed and supported as they can not only contribute to the recovery and revival of the economy, but also to the reconstruction of a cleaner and more liveable world (thus showing that good can always come out of evil).

Continue Reading

Energy

The ‘energy crisis’ and its global implications

Published

on

A particular news caught my attention this morning regarding energy crises. Before going into the depth of the news, I would like to introduce you to the concept of energy crisis and its global implications.  As introduced by Garrett Hardin in 1968; the tragedy of commons that the resources of world are limited, if the resources are used excessively soon there will come a time when they will become scarce. These resources can only be sufficient through cooperation of people among each other; there’s no other solution. The tragedy of commons is the best way to explain the concept the energy crises.

Now, the population world is growing at an exponential rate and with the growing population there is a need to provide a better lifestyle to the upcoming generations.  In a struggle for raising that standard of living, more and more resources of developed world are being utilized. The McKinsey Global Institute forecasted that by 2020 developing countries will demand 80 percent more energy which proved to be true as is evident in recurrent fuel shortages and price hike globally. A MIT study also forecasted that worldwide energy demand could triple by 2050.

Besides petrol, there is also a rise in demand for natural gas with only few reliable reserves all over the world. The natural gas reserves are mostly unreliable because they are usually found in deep oceans and mere accessibility can cost a lot of expense. Henceforth, the supply is limited, the price has fluctuated greatly and recent technological development has reduced dependence upon natural gas by providing alternatives such as fuel efficient or electric cars. Similarly, electricity supply systems are also not very reliable because there have been power blackouts in the United States, Europe and Russia. There have also been chronic shortages of electric power in India, China, and other developing countries.

If we specifically observe the Iraqi oil crises to understand the whole energy crises shebang, then according to today’s news in TRT World, in Iraq alone, $150bn of stolen oil cash smuggled out since 2003. Iraqi oil exports are even 30-40% below prewar levels. The acting president of Iraq is furious because insane amount of corruption is being carried out in Iraq where substantial quantity of oil is being smuggled. President Barham Saleh presented a legislation to parliament, where, under law any transaction over $500,000 would be scrutinized. This step, if materialized, can be very crucial in preservation of oil reserves in Iraq after the Saddam Hussein regime.

In United States, presidents have constantly been avoiding energy problems because they are very controversial. The recent Texas electricity outrage was a one that had been warned about. Before the Arab Oil Embargo Nixon in 1970’s was reluctant about energy and said ‘as long as the air conditioners are working normally, there is no energy crisis’ but after this incident Nixon began to change his tone and said on television that “energy is number one issue”. Then came Carter, who got a number of legislations passed on the issue of energy even when his own party was against it. In the 1970’s the prevalent thought for United States was that the world would run out of energy resources very soon so they started investing more in nuclear armament as an alternative. In 1990’s the combined cycle plants that used natural gas to create electricity were really efficient and economical that even gas at a high price could be competitive, also ethno-industry was crated at that time.

Then, the threat of climate change is also one of great relevance in the context of energy crises. The nonrenewable energy resources such as oil, water and coal must be used carefully and lack of which can be hazardous. It can cause drought, famine, disease, mass migration that will eventually lead to a conflict such as explained in the tragedy of commons theory. The now developed nations exploited natural resources to build its wealth. The resources such as wood, coal, oil and gas where on one hand are very economical, on the other hand they can be the originators of carbon emissions. Climate change also led to loss of biodiversity as well as environmental hazards.

Even though the developed world i.e. north provides a significant amount of assistance to the global North i.e developing countries, they cannot be a replacement for the shortage of resources. Also, they also face extreme price hike in the energy resources even though the developing nations are the ones owning the resources such Iraq for oil. Besides expensive resources, these developed nations also give rise to domestic and political tensions in the third world countries. Organizations like Al-Qaeda have openly declared their intent to attack oil facilities to hurt the interests of US and its close allies.

All in all, the pertaining threat of energy crisis has global implications. One person’s’gain is another person’s loss but this can be made inevitable if cooperation takes places. Sharing is caring and in this context sharing can prevent from future wars and hurricanes, floods and droughts and famines. The extent of seriousness of the problem must be taken into consideration not only be academicians but by policy makers as well.

Continue Reading

Energy

Stay in Oil or Race to Green Energy? Considerations for Portfolio Transformation

Published

on

st

Oil and gas (O&G) companies face a conundrum: capture the remaining value in hydrocarbons, or decide if, when and how much to invest in new, low-carbon energy business models.

The global O&G industry has the opportunity to redeploy as much as $838 billion, or about 20% of cumulative capital expenditures over the next 10 years, to further optimize their hydrocarbon business and/or pursue new growth areas including new energy ventures.

Of low carbon business models, market sentiment is currently strongest for renewable power with growing interest in green hydrogen and carbon capture as well.

Why this matters

In the wake of COVID-19 disruptions and an accelerating energy transition, O&G companies face a conundrum: stay and capture the remaining value in hydrocarbons or embrace new energy business models. Deloitte’s new “Portfolio transformation in oil, gas and chemicals” research series provides valuable insights into portfolio transformation and offers key considerations for companies making capital allocation decisions and exploring future business models.

Finding the right recipe for portfolio transformation

While companies understand the imperative to change, they are grappling with how much to invest and most vexing, in which green technologies? After all, while the high-growth phase of the oil market may have come to an end, oil demand is still projected to remain above 87 million barrels per day by 2030, even in accelerated energy transition scenarios.

How much to redeploy? $838 billion may be a starting point

To determine how much capital to redeploy, O&G companies could start with capital that is not earning the desired return. Deloitte analyzed 286 listed global companies and revealed that in a base case scenario, these companies could have the opportunity to optimize up to 6% of future O&G production which may not generate a 20% return at an average oil price of $55 per barrel. In other words, about $838 billion, or about 20% of future capital expenditures (CAPEX) across the global industry could be redeployed to optimize these projects and/or pursue promising green ventures. The findings suggest that the opportunity to redeploy will not decrease, but rather increase if oil prices stay above pre-pandemic levels. Among the company groups, supermajors, on average, have a potential to redeploy up to 36% of their future CAPEX.

Where to invest? Solar and wind most frequently mentioned

After performing text analytics and sentiment analysis on thousands of news articles to glean a directional sense of which low-carbon and new energy solutions are attracting the most media attention, the study found renewable power (solar and wind) had the highest share (47% among all green energy models). The tide also seems to be turning for green hydrogen (8% share of mentions).

“A confluence of factors, including climate, the pandemic, supply-demand imbalances, changing trends in end-markets, and growing appetite for sustainability investments, has given oil, gas and chemicals companies the need to progress faster around portfolio transformation. Many companies are eager to act but are seeking guidance on the speed and extent to which they expand into new, potentially high-growth areas, be it in new regions, markets, products or technologies. By taking a strategic, purpose-driven approach, companies can sustainably and profitably build a future-ready portfolio.”- Amy Chronis, vice chairman and U.S. oil, gas and chemicals leader, Deloitte LLP

Debunking myths: Turning hindsight into foresight to navigate portfolio transformation

While many O&G companies have transformed their portfolios over the years, not every change has been successful. The Deloitte analysis dispels conventional wisdom about strategic shifts and offers insights and important considerations about portfolio building in the O&G industry.

Myth 1: Agility and flexibility always deliver gains

  • Reality: Of the more than 286 upstream and integrated companies analyzed, only 16% of companies that made frequent changes to their portfolios delivered top-quartile financial performance.

Myth 2: Being big and integrated guarantees success

  • Reality: Only 28% of big (revenues above $10 billion) and integrated companies figured in the top-quartile.

Myth 3: Oil has lost its luster

  • Reality: Oil still delivers significant value for many. Two-thirds of oil-heavy portfolios deliver above-average performance.

Myth 4: Every “green” shift is profitable and scalable

  • Reality: Of portfolios that have become greener, 9% delivered top quartile financial performance, underscoring the importance of a strategic, purpose-driven approach to portfolio transformation.

Myth 5: Shale’s pain makes onshore conventional plays an obvious choice

  • Reality: Between 18-45% of non-shale portfolios analyzed delivered below-average performance.

Keys to building a future-ready O&G portfolio

There are four components of a forward-looking portfolio: growth engines, cash generators, profit maximizers, and divestment of value strains. Optimizing the energy transition is not just about selecting the correct technologies in which to invest; it also involves upgrading business models to incorporate new metrics, dynamic planning and AI-based analytics to become more agile. Companies should also consider strategic alliances to maximize their strengths and gain from others.

Chemicals and specialty materials (C&SM) face similar urgency for transformation

As the chemicals industry navigates its own portfolio transformations, focus is key. Deloitte’s analysis of more than 200 chemical companies over a 20-year period showed that focused companies — those that prioritize certain end-markets and product categories and derive at least 60% of the total revenue from that category — outperformed diversified chemical companies. In fact, focused chemical companies organically grew revenues at twice the rate, generated 70% higher return on invested capital (ROIC), and delivered 60% higher shareholder returns.

The top-performing chemical companies typically change their portfolio mix more frequently than others —usually changing their portfolio once every business cycle and remaining focused on their over-arching business strategy, be it low cost, differentiated products, or exceptional service.

Keys to building a future-ready C&SM portfolio

The study recommends C&SM companies make critical portfolio choices that create value. The ongoing disruption in end markets requires leaders to make conscious decisions about their competitive advantage and play in products and service categories where they can build and maintain that advantage. Moreover, given the growing emphasis on sustainability, chemical companies should consider investing in recycling technologies and incorporating renewable and recyclable materials in their product offerings.

Continue Reading

Publications

Latest

Trending