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TANAP Is Inaugurated: What Southern Gas Corridor Promises To The Europe And Stakeholders?

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Ever since the creation of mankind, human beings have always been in search of energy. Several conflicts and wars happened over energy resources for many centuries. Depletion of energy resources is the most important challenge that the major powers are struggling for. Energy policy is a big issue for almost any country in the world which is dependent on external resources. Energy consumption in the EU is more than any other region in the world while being poor in terms of energy sources. Implementation of renewable alternative energy projects requires proper and expensive infrastructure, which not all of the states are capable of it in an economic context. Therefore, alternatives and new routes in the traditional energy sources are vital priorities for the EU.

Since the last gas dispute with Russia, the EU has started to build effective policies to bring energy sources safely to the internal market by efficient transportation. Thus, the EU is trying to reduce energy dependency level on Russia by using geographical proximity advantage to the energy centres. In this sense, the Caspian region offers more stable and secured energy flow considering the fact that the Southern Gas Corridor (SGC) project is designed for this purpose between the region and the EU. Therefore, the EU is providing substantial support for the reconstruction and development of the infrastructure of gas pipelines, which passes from transit countries such as Georgia and Turkey and brings energy resources to Europe. There are several important reasons that the EU took into consideration while implementing SGC. Firstly, the 2006 and 2009 gas dispute showed that Ukraine is not a reliable transit country anymore. Instead, Turkey can be the more optimal alternative route as it has a desire to become a regional power. Secondly, Azerbaijan offers more stable and secured energy supply by using its foreign energy relations experience from 1994. Also, Azerbaijan is more interested in to cooperate with the West in energy relations rather than sticking into one direction and using intermediary actors. Because having reliable and effective transportation networks for easy access to the world market is essential for economic development and security of Azerbaijan due to its geographical location as a landlocked state. Thirdly and most important factor is security. In the modern era, the prior direction of the states’ foreign policy is the solution of the security problem. Eastern part of the EU, especially CEE countries, are highly dependent on Russian gas, which makes them go under both political and economic pressures from time to time. Therefore, the principal direction of the EU is to ensure energy security as well as the national security of the Member States by diversifying their economic trade partners. Energy security can be described either additional category of the national security or a category which is based on the synthesis of economic and political security. Thus, as the energy security has both economic and political implications, the EU makes great efforts to protect its borders from any threat by addressing to the issue in two ways; international aspect which is targeted to provide reliable, cost-effective and low-risk energy imports to the domestic warehouses, and local aspect which is intended to establish uninterrupted supply of energy with affordable price for the population and industrial workers (consumers).

TANAP AND AZERBAIJAN-EU ENERGY RELATIONS

In 2011 Azerbaijan and the EU signed a joint declaration on the Southern Gas Corridor. SGC was more an optimal and promising version of the Nabucco pipeline project. The direction of the project was also crucial for Europe because the Trans Adriatic Pipeline (TAP) and Trans-Anatolian gas pipeline (TANAP) in the SGC will deliver Azerbaijani gas to the South of Europe. Thus, this pipeline both will meet the gas needs of these regions and diminish Europe’s energy dependence on Russia slightly. Unlike Nabucco, the SGC is a more promising and strategic start to bring gas resources from the Caspian Sea, Middle East, and Central Asia. The primary purpose of this project is to diversify energy routes by using completely new and alternative directions. The geopolitical significance of the TAP project is quite high in terms of diversifying energy sources. Although the main direction of the TAP project is Italy and Greece at initial stage, the pipeline can supply Azerbaijani gas to several European countries, such as Austria, Central Europe region, Bulgaria, Balkan countries, Southern Croatia, Albania, Montenegro, Bosnia and Herzegovina as well as United Kingdom, Germany, France and Switzerland.

The project was announced on November 17 2011 at the Third Black Sea Energy and Economic Forum held in Istanbul and following this a memorandum of understanding was signed between Azerbaijan and Turkey on December 26 2011. The opening ceremony of TANAP was held on November 30, 2019, in Ipsala of Turkey’s Edirne province. Ipsala is located near the Turkey-Greece border, and TANAP is connected to the TAP, which will bring Azerbaijani gas to European region directly. TANAP is the largest and central segment of SGC and has strategic importance for both Azerbaijan and Turkey. First and foremost, Azerbaijan will be able to transfer its natural resources directly into the European market for the first time in history. Second, by joining this project, Turkey reaffirms its position in the regional security by becoming a reliable regional energy hub. Third, European states support the energy supply from the Caspian Sea to the European market and by providing economic and political support. Thus, SGC is a multinational natural gas pipeline supported by the European Commission and financed by the World Bank, European Bank for Reconstruction and Development, and Asian Infrastructure Investment Bank. Despite the US has not invested and will not get any commercial benefit from the project, Washington supports TANAP due to its promotion of diversification of energy supplies.

The EU is making significant efforts to diversify its energy supply and deliver Caspian gas to Europe without Russian intervention. On the other hand, procedures between the EU and Azerbaijan show that Azerbaijan is interested in independent cooperation with the EU. Although the Nabucco project failed, with the choice of TAP and TANAP projects, Azerbaijan proved its pragmatic partnership and its aim to increase revenues. At the same time, from its independence, the absence of internal conflicts in Azerbaijan, continuous promotion of peace, active involvement in international missions resulted in a robust, durable and stable economy and political system. In fact,as long as Azerbaijan is interested in delivering energy to the West by supporting transit projects, the EU does not face any difficulties in the region.

In order to describe the big picture, as presented by the EU Commission prior to the global financial crisis and alternative energy routes, it is essential to note that volume and cost are not the only elements at stake in the SGC.It has crucial geopolitical consequences. Building East-West transportation corridor passing through South Caucasus to connect Europe to Asia offers to establish new infrastructures, railways, highways and pipelines, new job opportunities, security as well as different transport facilities. This corridor sits right at the intersection of both politics and economics. In terms of economics, it creates new chances for the regional countries to connect to global markets and to stimulate economic development by fostering integration with the global economy. On the other hand, politically, it enhances the strength of sovereignty of both sides by opening new supply routes. Because the creation of transit corridors requires diversified access to the international arena considering the fact that being dependent on a single route may emerge potential blockade by the exporter.

Azerbaijan is one of the main actors of this corridor and can supply gas to the European market by improving European energy security and without creating additional geopolitical tension. Azerbaijan has experienced energy trade with Europe by implementing the BTC pipeline. Alternative supplies remain its significance by building affordable and relatively more feasible projects with necessary investments. Azerbaijan, in this picture, emerges as the most reliable supplier and trade partner with a clear understanding of supply, demand and transit routes. Therefore, the initiative of SGC, TANAP and TAP together with the EU aims to hinder Russia’s dominance in the European gas market. To put it briefly; SGC offers more benefits rather than its predecessors due to several reasons:

Energy resources in the Caspian Basin are important for the EU, and the geographical location of Azerbaijan makes it ideal and more optimal point for the transportation of these resources;

SGC is not long-distance route as Nabucco, therefore, it is affordable in terms of costs;

SGC will create competitive prices in the energy market, especially for Southern Europe at the first stage, and later for CEE countries;

SGC will strengthen Turkey’s position as a transit country, and enhance the EU-Azerbaijan relations.

In the future, it is planned to give life to the Trans-Caspian energy pipeline by connecting to the SGC. In this context, the legal status of the Caspian Sea defines the strategies of the five Caspian littoral states. Convention on the Legal Status of the Caspian Sea gave a ground that the other countries cannot intervene in the projects unless they are official partners. It means that by signing this convention, the five Caspian littoral states can build their energy strategies and policies independently. Thus, if the Trans-Caspian project is to be implemented in the future, it will be able to transport gas to Europe from other regions. The central part of this route will be the Southern Gas Corridor. Thus, Azerbaijan will also play a role in the region as a bridge to connect Europe with Asia, becoming a transit country. This means more investment, stronger infrastructure and well-built East-West relations.

TURKEY IS THE ‘KEY FOR THE ENERGY’

Turkey has limited natural resources which makes it dependent on external energy sources. As energy demand and dependency rate on external sources is increasing, energy issues have increased their weight by becoming the determinant of the dynamic of Turkish foreign policy gradually. The main objective of Turkey’s energy policy is to provide energy promptly to ensure economic growth as well as sufficient, reliable, competitive prices. Turkey imports its 98% energy demand from its energy-rich neighbours such as Russia, Iran, Azerbaijan thanks to its geographical location. On the other hand, Turkey is the vast market for these exporter countries. Therefore, the TANAP project has specific importance and means more than an energy project for Turkey. TANAP will not only diversify energy routes but also will contribute to the security of supply. Turkey considers this pipeline as an important project with its economic dimension because it will lead to the development of economic and political relations between Turkey and regional states. TANAP will improve the effectiveness of Turkey in the region as well as its position in the global energy projects. Another critical point is that Turkey aims to become an energy centre as Austrian Baumgarten if manages to involve as much as energy directions. This is important for the EU as well because by turning into an energy hub, Turkey can ensure Europe’s energy security and provide securitization of energy supply and formation of a market structure in which gas competes gas. Since TANAP offers regional prosperity and security, Turkey takes a critical role in every point of the value chain extending from producer to final consumer.

Since the dissolution of USSR, the Azerbaijan-Turkey axis has brought positive trends both in the political and economic fields. For instance, despite several issues and obstacles at the end of XX century, Azerbaijan and Turkey managed to implement the Baku-Tbilisi-Ceyhan (oil pipeline), Baku-Tbilisi-Erzurum (gas pipeline), and Baku-Tbilisi-Kars (railway) projects and strengthen their geopolitical benefits in the world arena. Following this, TANAP project Turkey will gain a strategic momentum against Russia in the context of ensuring energy flow, especially to Europe in the near future.

In conclusion, since the restoration of state independence in 1991, the Republic of Azerbaijan has defined the integration and expansion of cooperation with the EU as one of the strategic directions of foreign policy. The economic integration interests of Azerbaijan towards Europe are shaped by geopolitical and geoeconomic position and socio-economic development of the country.The SGC is particularly vital in terms of EU’s energy security. The interest of the European countries in this project results in the construction of new infrastructure for the secure supply of energy resources from the Caspian region to Europe.Additionally, TAP and TANAP will have a positive impact on Europe’s as well as Turkey’s energy economy, while diversifying energy routes because these projects will create competitive prices in energy markets. Also, SGC is considered to be profitable for both the participating countries and companies directly involved in its implementation.

Mr. Aliyar Azimov is Senior Specialist in the Institute of Caucasus Studies at Azerbaijan National Academy of Sciences. He is an honored graduate student of Pécs University. He got his Bachelor degree at Baku State University from International Relations and Economics programme. His main research fields concern on energy politics and security, international security and foreign policy issues, peace and conflictology, political economy, and internal/external affairs of South Caucasus. He is successful participator of Essay Contest, titled Russia’s actions against the Southern Gas Corridor and potential impacts in this direction, held by UNEC Research Foundation. He was honored as the best student of year in 2013 at Baku State University. Mr. Aliyar worked as a program manager at Hungarian NGO – Subjective Values Foundation. Currently, he is also External Relations Manager at Technote, which is the biggest tech media company in Azerbaijan.

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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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