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US strives to supply Europe with its own gas

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American Congressmen continue to exert every effort to thwart the completion of the Nord Stream-2 gas pipeline, which is designed to secure a long-lasting supply of Europe with Russian gas. A parliamentary bill devised by the US Senate to toughen anti-Russian sanctions envisages measures against European companies and their production facilities involved in the construction of the pipeline. Simultaneously, the ongoing “trade war” between the United States and China “incorporates” the problem of Russian pipeline gas supplies to Europe into the wider system of Washington’s foreign policy priorities, which “pushes stakes up” in this “game”.

According to the bill, which was drafted by Republican  Senator Ted Cruz and Democratic Senator Jeanne Shaheen, the new US sanctions will affect European ships that are involved in the construction of the Nord Stream – 2 gas pipeline. The restrictions will also spread to companies that are building deep-water pipelines for Russian energy projects, and, as stated by the American edition of The Foreign Policy, the document is directed directly against the Nord Stream-2 project, which “caused tensions between the US and Germany. ”

The authors of the bill point out that while laying pipelines the relevant vessels use the western know-how which Russia does not have.” “This is one of the few areas where Gazprom lacks technical knowledge and technology to implement pipeline projects,” – an expert on Eurasian energy issues in the Atlantic Council, Agnia Grigas, said as she commented on the new sanctions in an interview with The Foreign Policy.  Earlier, the American newspaper The Wall Street Journal, citing its own sources, indicated that the United States plans to impose sanctions on investors and companies that are building the Nord Stream-2 pipeline, and, in order to facilitate this process, the Senators are planning to introduce the relevant measures as amendments to the current package of anti-Russian sanctions.

In the meantime,  a high-ranking US official who wished not to be named indicated in his commentary that the provisions of the new bill were designed on the basis of the previous US sanctions which aimed at undermining the export of Iranian oil. According to The Foreign Policy, the new restrictive measures will affect individuals and legal entities that sell or rent vessels to be used in the construction of the Nord Stream-2 gas pipeline. In addition, the draft provides restrictions for those who provide financial and technical support for these vessels, as well as cover their insurance.

The company-operator of the project, Nord Stream 2 AG, has already commented on US restrictions regarding the project and the companies involved in its construction, saying that since the pipeline is being built in accordance with the law, the company does not see any need to introduce a special “plan B” in case of sanctions.

Representatives of the Donald Trump administration and the State Department, though talking about the possibility of new measures against the Russian project in general statements, confirm their readiness to apply sanctions against it. In particular, the US Ambassador to Germany, Richard Grenell, has already warned that the Nord Stream 2 project runs a “high risk of facing sanctions”. In early May, in an interview with Focus, he made it clear that Washington could impose sanctions on German companies participating in the Nord Stream-2 gas pipeline project.

In Germany proper,  plans by US officials and their like-minded counterparts in the European Commission cause ill-concealed irritation. Federal Chancellor Angela Merkel has decided to intervene in the discussion in person. Speaking in the German city of Ravensburg, she made it clear that Washington and Brussels, despite the adoption of a new version of the EU Gas Directive, would not be able to block the Nord Stream 2 project, which she considers very profitable for Germany. According to Angela Merkel, the idea of a gas pipeline across the bottom of the Baltic Sea has already been approved in principle. Simultaneously, the Federal Chancellor acknowledged that the main disputes over this project are connected with Ukraine. In her opinion, “transit through this country should continue.” She indicated that she had mentioned this to Russian President Vladimir Putin and that she is planning to discuss this issue with the new Ukrainian President Vladimir Zelensky after he officially takes office.

Angela Merkel added that “Nord Stream 2” is not a purely German project –  French, Austrian and Dutch companies are also involved in the construction of the gas pipeline. They include German Wintershall and Uniper, Austrian OMV, French Engie and British-Dutch Shell.

According to the German Chancellor, in the future Germany intends to diversify gas supplies and will build storage facilities for LNG. However, at present, the country needs the Nord Stream – 2 gas pipeline, particularly amid  a reduction in gas imports from Norway and the Netherlands.

According to the German media,  Berlin does not restrict itself to verbal statements in support of the Nord Stream 2 project but is trying its best to influence the American side in this issue. In particular, according to Bild, the German Ambassador to the United States, Emily Haber, has sent a letter to the US Congress urging them to stop threatening Russian companies PJSC  NOVATEK and PJSC Gazprom, operating in Germany, with new sanctions. In her words, such actions jeopardize the energy security of Germany and of the entire European Union.

In her letter, Emily Haber points out that since countries of the European Union have adopted amendments to the Gas Directive, the issue of blocking the construction of the Nord Stream-2 gas pipeline is closed for Europe: “All countries that criticized the Nord Stream-2 approved this document “. Given the situation, the German diplomat described any further steps that Washington might take in order to hinder the development of the project as counterproductive and potentially threatening the energy security of the EU.

“What is also worrying is that the planned LNG terminal in Rostock may come under DASKA sanctions because of a minority stake owned by the Russian company NOVATEK,” – Bild says quoting Emily Haber. According to her, these sanctions can cause damage to LNG imports to Germany.

The Belgian gas company Fluxys and NOVATEK are planning to build a transit terminal for liquefied natural gas with a capacity of about 300 thousand tons per year in the port of Rostock. The facility is scheduled to be commissioned in 2022.

In response to a request from Bild to comment on the letter of the German ambassador to the US Congress, the German Foreign Ministry confirmed that the country’s government “is in constant and close contact with the US, including on the issue of sanctions.”

 Russia deems Washington’s attempts to disrupt the implementation of the Nord Stream-2 project an instance of unfair competition which resorts to political pressure, ultimatum and sanctions to make Europeans buy American liquefied natural gas.  According to Russian president’s secretary Dmitry Peskov, instead of “racketeering” and “raiding,” Washington should think about how to persuade Europeans to buy American LNG, which costs by “tens of percentage points” more compared to that produced in Russia.

The continuing trade war between Washington and Beijing is yet another factor demonstrating that the US has been stepping up efforts to assume control of the European energy market. In response to the decision of  President Donald Trump to increase customs tariffs on the import of Chinese goods worth $ 200 billion from 10% to 25%, Beijing is increasing import tariffs on American LNG as of June 1 this year. According to the Chinese Customs Tariff Committee, the tariffs will go up from the current 10% to 25%.

The export of LNG from the US into China has dropped considerably since the Chinese tariffs came into effect in September 2018. According to Vygon Consulting, American LNG exports to China amounted to only 0.3 million tons in the first four months of this year compared to the same period in 2018, when China received 1.4 million tons of LNG. As a result, we have witnessed a forced redistribution of US liquefied natural gas flows to Europe, which, in turn, explains the toughening of Washington’s policy on the Nord Stream 2 project and reaffirms the existence of unfair competition from the United States.

The Russian gas pipeline project has been mentioned in US sanctions initiatives since the summer of 2018 as part of a policy aimed at increasing US LNG sales in Europe,” – said Maria Belova, research director at Vygon Consulting. She makes it clear that even though the trade war with China was unleashed later,  the fact that LNG is becoming one of its victims creates an additional incentive for the US to try to secure a market for it in Europe.

Meanwhile, the excess volumes of American liquefied natural gas unclaimed by the Chinese market still end up on a market which, like the oil market, is global, – says Sergey Kapitonov, gas analyst at the Energy Center of the Moscow School of Management “Skolkovo”. Amid a favorable pricing environment, more and more LNG is being delivered to Europe, which creates a certain challenge for pipeline supplies from Russia.

Given the situation, future developments on the Nord Stream 2 project will largely depend on factors outside Europe, including the situation in Asian markets (where a possible increase in gas consumption could lead to an increase in demand and a rise in prices and consequently, reorientation of supplies), and also changes in world oil prices (which a number of Russian long-term gas contracts depend on). What is also of crucial importance is the military and political situation in the Middle East and the Persian Gulf, which account for the bulk of the world’s energy resources.

 First published in our partner International Affairs

Peter Iskenderov, senior research assistant at RAS Slavic Studies Institute, candidate of historical sciences

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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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