Representatives of Russia, Ukraine and the European Commission are due to gather for gas negotiations in Brussels on September 19th. Experts say the talks may play a crucial role in addressing the pressing issue of Russian gas supplies to Europeans. Maroš Šefčovič, who is responsible for energy issues in the European Union leadership, said on Twitter that progress in this direction will provide the market a powerful positive impetus ahead of the winter season. During the upcoming negotiations, Moscow and Kiev will try to secure a deal, through the mediation of the European Commission, on a new agreement on the transit of Russian gas to Europe through Ukraine (the current one expires on December 31, 2019).
At present, the two parties are at odds over how to approach the gas issue. Ukraine, with the support of the European Commission, proposes to conclude a long-term contract for the next 10 years, and if the existing agreement is extended for one year, the Kiev authorities expect to receive compensation payments from PJSC Gazprom in accordance with the decisions of the Stockholm Arbitration Court.
The fact that Ukraine will demand compensation from Gazprom if the Russian company insists on signing a contract on the previous terms was reported a few days ago by Executive Director of Naftogaz Ukraine Yury Vitrenko. “If they stick to their current position, which will lead to the absence of gas transit through Ukraine from January 1, 2020, we will force them to pay, compensate for our losses,” – he said, adding that in case of continued gas transit through the territory Ukraine, Naftogaz will not review tariffs and will not require Gazprom to pay compensation in the amount of 11-14 billion dollars.
At the same time, Kiev is fully aware of the fact that in 2021 the Stockholm arbitration will go into sessioin to consider the conflict between the companies involved on the gas transit contract, under which the amount of Naftogaz’s claims against Gazprom amounts to $ 11.58 billion.
Moscow, for its part, is ready to conclude a short-term contract or extend the existing one (without any additional compensation) for a period necessary to build and put into operation the Nord Stream 2 and Turkish Stream bypass pipelines.
Speaking at a meeting with President Putin on September 9th Gazprom Board Chairman Alexei Miller reiterated the importance of addressing the issue of Russian gas transit through Ukraine and the prospects for Kiev to purchase Russian gas. He reminded the participants that by the end of this year, the company expects to pump at least 11.4 billion cubic meters of gas into underground storage facilities in Europe, which is more than double the level of 2018. According to Miller, “one of the factors to account for the high volumes of gas injected into underground storage facilities is that the contract for gas transit through the territory of Ukraine expires on December 31st this year.”“Even though the transit agreement is extremely important, still more important is whether Ukraine will buy Russian gas under a direct contract,” – Alexei Miller said. According to him, “in the event of concluding a direct gas supply agreement with Gazprom, the price of gas for the end consumer in Ukraine may be 25 percent lower than the current level. But, undoubtedly, the main issue is the supply of gas for the Ukrainian market. This is a matter of bilateral negotiations between Russia and Ukraine. ”
“We are trying to reach a new transit agreement, despite the fact that at the moment, we are putting the finishing touches to the Nord Stream-2 pipeline,” – said Andrei Suzdaltsev, an independent post-Soviet space expert, in an interview with Economics Today. According to Suzdaltsev, whatever the case, Gazprom needs a transit agreement with Kiev in order to ensure the implementation of its gas supply agreements with the EU countries. It must also be taken into account that if Ukraine does not have transit gas, there will be no gas in the country, “since there will not be a reverse, which is the resale of Russian gas by Europeans,” – said Andrey Suzdaltsev.
Ahead of negotiations with Russia, Ukraine is trying to strengthen its positions, using the support of other states, first of all Poland and the United States. The three countries have signed a memorandum of cooperation in the gas sector, which, in the words of the Ukrainian edition Apostrof, “should become an additional factor in securing the energy independence of our country. The document stipulates that from 2021 Ukraine will receive 6 billion cubic meters of gas from Poland. ” It is assumed that US traders will supply liquefied natural gas to the Świnoujście LNG terminal, whose capacity is projected to increase from the current 5 billion cubic meters to 7.5 billion cubic meters per year by 2021. After regasification, part of this gas can be supplied to Ukraine. At present, Poland’s gas transportation capacities make it possible to supply Ukraine with only about 1.5 billion cubic meters of gas. In 2018, Polish gas supplies amounted to only 0.7 billion cubic meters, the Ukrainian edition says and adds: “At the same time, a significant part of gas which Ukraine buys in Europe, comes from Russian. Given that in 2020, when the current Ukrainian-Russian gas transportation contract to Europe terminates, the Russian Federation may completely block gas transit through our country, which will jeopardize gas imports to Ukraine from Europe, since a significant part of these supplies is carried out by reverse, including by the “virtual” one.
“It needs to be understood that a memorandum is just a declaration of intent, not a full-fledged contract, which stipulates all terms of delivery, including their volume and fuel price,” – Apostrof points out citing Vladimir Omelchenko, Director of Energy Programs at Razumkov Center in Kiev: “We have a lot of memorandums which have been signed, but many of them are not being implemented. Everything will depend on the effectiveness of the new government, on the management of Naftogaz Ukraine – prospects for the project depend on how they work. ”
Project Director of the Ukrainian Sientific Development Center “Psyche” Gennady Ryabtsev is more skeptical. He says implementation of the memorandum is possible if three conditions are met. The first is the construction of an interconnector between Ukraine and Poland. Even though this project has been under discussion for several years, construction has not yet begun. The second condition is an increase in the capacity of the Polish terminal Swinoujscie. The third condition is the availability of the resource itself: “Gas goes where the best prices are, so it is unclear whether the required volumes will be available, and therefore, a long-term agreement must be signed on the guaranteed provision of certain quantities of gas”. According to Gennady Ryabtsev, if one of these conditions is not satisfied, the agreement will not be implemented in full. “Our country shouldn’t expect Poland to supply such volumes of fuel, at least in the coming years,”, even if the capacity of the LNG terminal increases to 7.5 billion cubic meters, ” – says Gennady Ryabtsev .
Another important factor in the run-up to the upcoming three-party negotiations may be the recent ruling of the EU Supreme Court on the lawsuit of the Polish company PGNiG, which restricts Gazprom’s access to the OPAL pipeline, which is a branch of the Nord Stream gas pipeline. This pipeline connects Nord Stream with the gas transportation system of Western and Central Europe and carries gas to Germany up to the border with the Czech Republic in the volume of up to 36 billion cubic meters per year.
Initially, in accordance with the European anti-monopoly legislation, Gazprom was allowed use only 50% of this leg’s capacity. However, in October 2016, the European Commission agreed to remove the OPAL gas pipeline from the Third Energy Package for the period up to 2033 and allowed Gazprom to use the pipe by 90%. This decision has now been overruled by the EU Supreme Court. And this is hardly a coincidence. On September 10 the EU Supreme Court satisfied the Polish company PGNiG’s lawsuit against the European Commission and restricted Gazprom’s access to the capacities of the cross-border European gas pipeline. According to PGNiG Deputy Director General Maciej Wozniak, due to this unexpected ruling, Gazprom will not be able to completely stop gas transit through Ukraine, at least in the coming months. “We are looking into the legal and commercial consequences of this decision,”- Gazprom Export said in turn.
Gazprom’s access to OPAL’s facilities has been a subject of controversy since the construction of this pipeline went under way. This is one of two, along with NEL, branches of the Nord Stream gas pipeline, which was launched at the end of 2011. There are no other sources of gas for OPAL and NEL except for the Russian gas. The NEL gas branch does not come under the above restrictions, since it does not go beyond Germany.
The decision of the EU court on the OPAL gas pipeline will affect gas negotiations with Ukraine and the European Commission, – Russian Energy Minister Alexander Novak confirmed in an interview on Rossiya 24 Channel. He said the current situation affects gas supplies to Europe as a whole: “In my opinion, this decision affects the supply of gas to European countries, the gas flows.”
Polish political analyst Mateusz Piskorski says that the decision of the EU Supreme Court on the lawsuit of a company from his country was not caused by economic considerations. “In fact, everything has long become clear, everything has been clear from the moment negotiations with the USA began on the delivery of liquefied natural gas, when a fairly large-scale project led by Poland was launched, so that countries of Central and Eastern Europe would gradually switch to American liquefied natural gas. So any attempts to block Gazprom’s access to European markets play into the hands of American partners of the Polish government. So, I think that’s the point. Plus, of course, the political point of view of Poland that it is necessary to support the interests of Ukraine as a transit country. Thus, there are two main reasons, and they have nothing to do with economic considerations. ”
“I don’t think the alternative for Europe is to buy Trump’s natural gas. We must rely on the resources of our own continent, which were discovered and developed, including through Franco-Russian cooperation,” – said Loic Le Flock-Prizhan, former president of Gaz de France, who advocates the idea of a large-scale international project on the construction of a modern gas pipeline through Ukraine in order to supply Russian gas to Europe. “We will focus on Russian gas fields that produce inexpensive gas. The world economy is shifting towards Russia, China and India, and if all the cheap Russian gas goes to other continents, I have no idea how Europe will survive. In other words, this pipeline is very important – we must have a chance to count on cheap gas and strong ties with Russia regardless of circumstances or personalities. We need to pursue this structural project,” – he emphasizes. But this project is so far only an idea, nothing more.
Given the situation, it should be borne in mind that one of the most active players in the upcoming gas talks is the United States, though it is not among the negotiating parties. American LNG producers are set on disrupting an agreement between Moscow and Kiev, which will not only strengthen Europeans’ dependence on more expensive American gas, but will also aggravate tension between the EU and Russia, which is something Washington is interested in. All this yet again supports the fact that the United States and its allies are using political pressure on their counterparties in addressing economic issues.
From our partner International Affairs
Indonesian Coal Roadmap: Optimizing Utilization amid Global Tendency to Phasing Out
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).
Engaging the ‘Climate’ Generation in Global Energy Transition
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.
The Urgency of Strategic Petroleum Reserve (SPR) for Indonesia’s Energy Security
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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