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How Kurdistan’s Oil Achievements Serve Peace in The Region?

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Oil, the main element in establishing the country of Iraq during the division of the Ottoman Empire, is still the main economic factor that drives all politics in the country. Nationalizing the oil in 1972, made the state’s economy dependent upon oil revenues to fund Iraq’s budget. It also cemented the relationship of oil with the country’s economic growth. It paid for the cost of wars with the neighbors and strengthened the regimes. Now, at least Forty-five years since Iraq’s national oil company Establishment, we now see in 2017 that the oil net revenues as a percent of Gross Domestic Product of Iraq were about 37.78% and the share of oil revenue in federal annual budget stands at more than 88% in 2019!

After 2003, despite the fundamental changes to the Iraqi government, which included Democratic elections, and critical Republican Reform which have yet to be enacted, Oil may have regained its position as the hero, saving the government from a lack of economic muscle, specifically, industrial capacity, heavy and light Manufacturing infrastructure, as well as economic diversification. These factors and the devastation of several wars have created a weak economy. There has been a sharp rise of the public’s discontent recently as expectations of a growing economy, with prosperity for the citizens of Iraq have failed to materialize. These protests have shaken the elected government to its very foundation. Iraq’s reaction resulted in over 300 people having been killed.

Reasonably, the state’s oil production has received scrutiny and highest priority of the Iraqi federal government.

Recently, crude oil production has risen to 4.62 million barrels per day(bpd). The Kurdistan Regional Government (KRG) share of is about 450,000 bpd, equating to just less than 10% of total Crude Oil production.

The KRG started its own oil development plan in 2002, while Saddam Hussein was still ruling over Iraq.  Since the post-Saddam era, specifically in 2006, KRG, under authority granted under various provisions of the newly enacted Iraqi Federal Constitution, primarily articles of 111, 112, 114 & 115, established the necessary institutions to effectively manage oil production, distribution and sales, placed under the administration of the Ministry of Natural Resources (MNR), to follow up its ambitious plans for the region’s oil and gas sector. The regional Kurdistan Regional Government’s parliament approved the Ministry’s establishment in lawful accordance to the Constitution with the enactment of the Regional Oil and Gas Law in 2007. It is important to note the Federal Government at that time did not contest the actions of the KRG as it was under authority granted by the Newly enacted Constitution.

 International Oil Corporations(IOC’s) were invited to bid on the development of various oil blocks and the winning bidders were awarded contacts for oil exploration and Production. Hence, the KRG’s exclusive pipeline has been connected to the Turkey since 2014. This pipeline currently operates at a capacity of 700,000bpd. It is expected to be expanded and reached an increased capacity of one million bpd by 2021.

Control over Kurdistan’s oil and gas sector, most importantly, revenue from product sales is the primary point of contention between Baghdad and Erbil. The negotiations are over Kurdistan’s independent sale and export of crude oil that began in 2014, facilitated by completion of its major pipeline and the commencement of production, enabling KRG’s independent export.

Since 2014, Former Iraqi federal governments have tried multiple ways to deprived KRG from directing Kurdistan’s oil including curtailment of KRG’s share of the federal budget. Cash flows were cutoff even while KRG’s Peshmerga forces were engaged in the war against ISIS. Baghdad has used multiple methods to restrain the lawful sale and export of Crude oil that have included the following:

It filed formal complaints to federal and international courts; It threatened IOCs for working in Kurdistan; as well as making a claim in International Chamber of Commerce against Turkey for its cooperation with KRG to transport, storage and sale of Kurdistan’s oil in Turkey’s Port of Ceyhan.

While successes in Kurdistan’s oil industry grew, so too, did Baghdad challenges to that success.

Yet despite all the conflicts between Baghdad and Erbil, both followed their development plans seriously, to sufficiently empower themselves to assure their separate growth. Iraq created its target to reach 6million bpd, almost entirely dependent upon Basra and Kirkuk oil fields. The problem Baghdad faces is that while further development of the Basra oil fields require huge infrastructural development investments, Kirkuk’s fields, contain more than 9 billion barrels of oil, that can reach a record production of 1million bpd rapidly, if export solutions are found. Kirkuk oil fields and the historical and emblematic, Baba Gurgur. These oil fields were first developed in Iraq by Turkish Petroleum Company, directed mainly by Anglo-Persian Oil Company, British Petroleum’s(bp) predecessor. The development license of the Kirkuk oil fields was granted to bp by Iraqi Ministry of Oil, in 2009, despite Kirkuk being one of “the disputed areas” with a majority Kurdish Population, addressed in Article 140 of the Iraqi Federal Constitution “to [be] determine[by] their citizens will” to join Kurdistan Regional Government or to remain within Iraq.

However, bp operations in Kirkuk had to be suspended, after Iraqi forces withdrew in 2014 instead of fighting against ISIS forces’ threatens against this region, when Kurdish Peshmerga saved the area and came it under civilian control. But after October 16, 2017, when Iraqi forces prevailed Kirkuk as a response to Kurdistan’s Independence Referendum, bp immediately returned Kirkuk to continue her contract, ended permanently in January, 2020, after continuing the instability and lack of security in absence of Kurdish forces in Kirkuk, as well as in lack hopes to have robust solution for exporting the product, caused of weak relationship between bp and KRG, despite Kurdistan’s government welcomed to export some part of Kirkuk product through her export pipeline.

Yet, the 2018 elections in both of Iraq and KRG created new chances to bring the governments closer. The last Iraqi government, which would be replaced soon by cabinet of new designated P.M’s, KRG have come together to calm the situation since last year. It was effectively confirmed by the new KRG P.M, H.E “Masrour Barzani”, visiting Baghdad after he was designated by Kurdistan Parliament and wrote about his plans in the Washington Post, “I will also take steps to reset the relationship between Irbiland Baghdad, which has remained fraught for the past 16 years”…. and “It is time for a more constructive and stable partnership with Baghdad.” (Washington post, July 18, 2019)

However, Erbil continues to respect the spirit of cooperation with Baghdad, despite current demonstrations and unclear future of the central government.

KRG had determined that it would support Iraq’s oil production plan by exporting more than 100,000 bpd of Kirkuk’s oil via Kurdistan’s pipeline since last July. Also, Kurdistan’s government has taken further steps to foster good will with Baghdad to satisfy central government’s condition regarding Kurdistan’s share in the 2020 federal budget.

Kurdistan’s Oil infrastructure and production achievements, including its pipeline, were once fiercely objected to by previous Iraqi federal governments as illegal, and its own production capabilities, even to the point of being under the Iraqi central government’s control. Yet today Kurdistan’s pipeline infrastructure and oil production that did not even exist in the past are now used legitimately by Kurdistan government in order to bring more economical development and welfare to the Kurdistan’s citizens. With this recent symbiotic relations with Baghdad could possibly improve permanently, and with the cooperation of Baghdad the rights of the KRG would be observed and honored designated in the federal constitution.

 Yet we know that only a strong Kurdistan through the will of the people will truly secure Kurdistan’s rights, granted to KRG under the Iraqi federal Constitution and must be respected. Peace and security for Kurdistan will help improve stability and security for Iraq, and in the bigger scope for the region, hoped to be continued in the long run, especially by the future federal government of Iraq and parliament.

Independent Energy Economy Analyst and Energy Development Consultant Managing Director of ARDO Consultancy center http://ardoconsultancy.co/

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The hydrogen revolution: A new development model that starts with the sea, the sun and the wind

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“Once again in history, energy is becoming the protagonist of a breaking phase in capitalism: a great transformation is taking place, matched by the digital technological revolution”.

The subtitle of the interesting book (“Energia. La grande trasformazione“, Laterza) by Valeria Termini, an economist at the Rome University “Roma Tre”,summarises – in a simple and brilliant way – the phase that will accompany the development of our planet for at least the next three decades,A phase starting from the awareness that technological progress and economic growth can no longer neglect environmental protection.

This awareness is now no longer confined to the ideological debates on the defence of the ecosystem based exclusively on limits, bans and prohibitions, on purely cosmetic measures such as the useless ‘Sundays on which vehicles with emissions that cause pollution are banned’, and on initiatives aimed at curbing development – considered harmful to mankind – under the banner of slogans that are as simple as they are full of damaging economic implications, such as the quest for ‘happy degrowth’.

With “degrowth” there is no happiness nor wellbeing, let alone social justice.

China has understood this and, with a view to remedying the environmental damage caused by three decades of relentless economic growth, it has not decided to take steps backwards in industrial production, by going back to the wooden plough typical of the period before the unfortunate “Great Leap Forward” of 1958, but – in its 14thFive-Year Plan (2020- 2025)-it has outlined a strategic project under the banner of “sustainable growth”, thus committing itself to continuing to build a dynamic development model in harmony with the needs of environmental protection, following the direction already taken with its 13th Five-Year Plan, which has enabled the Asian giant to reduce carbon dioxide emissions by 12% over the last five years. This achievement could make China the first country in the world to reach the targets set in the 2012 Paris Climate Agreement, which envisage achieving ‘zero CO2 emissions’ by the end of 2030.

Also as a result of the economic shock caused by the Covid-19 pandemic, Europe and the United States have decided to follow the path marked out by China which, although perceived and described as a “strategic adversary” of the West, can be considered a fellow traveller in the strategy defined by the economy of the third millennium for “turning green”.

The European Union’s ‘Green Deal’ has become an integral part of the ‘Recovery Plan’ designed to help EU Member States to emerge from the production crisis caused by the pandemic.

A substantial share of resources (47 billion euros in the case of Italy) is in fact allocated destined for the “great transformation” of the new development models, under the banner of research and exploitation of energy resources which, unlike traditional “non-renewable sources”, promote economic and industrial growth with the use of new tools capable of operating in conditions of balance with the ecosystem.

The most important of these tools is undoubtedly Hydrogen.

Hydrogen, as an energy source, has been the dream of generations of scientists because, besides being the originator of the ‘table of elements’, it is the most abundant substance on the planet, if not in the entire universe.

Its great limitation is that in order to be ‘separated’ from the oxygen with which it forms water, procedures requiring high electricity consumption are needed. The said energy has traditionally been supplied by fossil – and hence polluting- fuels.

In fact, in order to produce ‘clean’ hydrogen from water, it must be separated from oxygen by electrolysis, a mechanism that requires a large amount of energy.

The fact of using large quantities of electricity produced with traditional -and hence polluting – systems leads to the paradox that, in order to produce ‘clean’ energy from hydrogen, we keep on polluting the environment with ‘dirty’ emissions from non-renewable sources.

This paradox can be overcome with a small new industrial revolution, i.d. producing energy from the sea, the sun and the wind to power the electrolysis process that produces hydrogen.

The revolutionary strategy based on the use of ‘green’ energy to produce adequate quantities of hydrogen at an acceptable cost can be considered the key to a paradigm shift in production that can bring the world out of the pandemic crisis with positive impacts on the environment and on climate.

In the summer of last year, the European Union had already outlined an investment project worth 470 billion euros, called the “Hydrogen Energy Strategy”, aimed at equipping the EU Member States with devices for hydrogen electrolysis from renewable and clean sources, capable of ensuring the production of one million tonnes of “green” hydrogen (i.e. clean because extracted from water) by the end of 2024.

This is an absolutely sustainable target, considering that the International Energy Agency (IEA) estimates that the “total installed wind, marine and solar capacity is set to overtake natural gas by the end 2023 and coal by the end of 2024”.

A study dated February 17, 2021, carried out by the Hydrogen Council and McKinsey & Company, entitled ‘Hydrogen Insights’, shows that many new hydrogen projects are appearing on the market all over the world, at such a pace that ‘the industry cannot keep up with it’.

According to the study, 345 billion dollars will be invested globally in hydrogen research and production by the end of 2030, to which the billion euros allocated by the European Union in the ‘Hydrogen Strategy’ shall be added.

To understand how the momentum and drive for hydrogen seems to be unstoppable, we can note that the Hydrogen Council, which only four years ago had 18 members, has now grown to 109 members, research centres and companies backed by70 billion dollar of public funding provided by enthusiastic governments.

According to the Executive Director of the Hydrogen Council, Daryl Wilson, “hydrogen energy research already accounts for 20% of the success in our pathway to decarbonisation”.

According to the study mentioned above, all European countries are “betting on hydrogen and are planning to allocate billions of euros under the Next Generation EU Recovery Plan for investment in this sector”:

Spain has already earmarked 1.5 billion euros for national hydrogen production over the next two years, while Portugal plans to invest 186 billion euros of the Recovery Plan in projects related to hydrogen energy production.

Italy will have 47 billion euros available for “ecological transition”, an ambitious goal of which the government has understood the importance by deciding to set up a department with a dedicated portfolio.

Italy is well prepared and equipped on a scientific and productive level to face the challenge of ‘producing clean energy using clean energy’.

Not only are we at the forefront in the production of devices for extracting energy from sea waves – such as the Inertial Sea Waves Energy Converter (ISWEC), created thanks to research by the Turin Polytechnic, which occupies only 150 square metres of sea water and produces large quantities of clean energy, and alone reduces CO2 emissions by 68 tonnes a year, or the so-called Pinguino (Penguin), a device placed at a depth of 50 metres which produces energy without damaging the marine ecosystem – but we also have the inventiveness, culture and courage to accompany the strategy for “turning green”.

The International World Group of Rome and Eldor Corporation Spa, located in the Latium Region, have recently signed an agreement to promote projects for energy generation and the production of hydrogen from sea waves and other renewable energy sources, as part of cooperation between Europe and China under the Road and Belt Initiative.

The project will see Italian companies, starting with Eldor, working in close collaboration with the Chinese “National Ocean Technology Centre”, based in Shenzhen, to set up an international research and development centre in the field of ‘green’ hydrogen production using clean energy.

A process that is part of a global strategy which, with the contribution of Italy, its productive forces and its institutions, can help our country, Europe and the rest of the world to recover from a pandemic crisis that, once resolved, together with digital revolution, can trigger a new industrial revolution based no longer on coal or oil, but on hydrogen, which can be turned from the most widespread element in the universe into the growth engine of a new civilisation.

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Jordan, Israel, and Palestine in Quest of Solving the Energy Conundrum

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Gas discoveries in the Eastern Mediterranean can help deliver dividends of peace to Jordan, Israel, and Egypt. New energy supply options can strengthen Jordan’s energy security and emergence as a leading transit hub of natural gas from the Eastern Mediterranean. In fact, the transformation of the port of Aqaba into a second regional energy hub would enable Jordan to re-export Israeli and Egyptian gas to Arab and Asian markets.

The possibility of the kingdom to turn into a regional energy distribution centre can bevalid through the direction of Israeli and Egyptian natural gas to Egyptian liquefaction plants and onwards to Jordan, where it could be piped via the Arab Gas Pipeline to Syria, Lebanon, and countries to the East.  The creation of an energy hub in Jordan will not only help diversify the region’s energy suppliers and routes. Equal important, it is conducive to Jordan’s energy diversification efforts whose main pillars lie in the import of gas from Israel and Egypt; construction of a dual oil and gas pipeline from Iraq; and a shift towards renewables. In a systematic effort to reduce dependence on oil imports, the kingdom swiftly proceeds with exploration of its domestic fields like the Risha gas field that makes up almost 5% of the national gas consumption. Notably, the state-owned National Petroleum Company discovered in late 2020 promising new quantities in the Risha gas field that lies along Jordan’s eastern border with Iraq.

In addition, gas discoveries in the Eastern Mediterranean can be leveraged to create interdependencies between Israel, Jordan, and Palestine with the use of gas and solar for the generation of energy, which, in turn, can power desalination plants to generate shared drinking water. Eco-Peace Middle East, an organization that brings together environmentalists from Jordan, Israel and Palestine pursues the Water-Energy Nexus Project that examines the technical and economic feasibility of turning Israeli, Palestinian, and potentially Lebanese gas in the short-term, and Jordan’s solar energy in the long-term into desalinated water providing viable solutions to water scarcity in the region. Concurrently, Jordan supplies electricity to the Palestinians as means to enhancing grid connectivity with neighbours and promoting regional stability.

In neighbouring Israel, gas largely replaced diesel and coal-fired electricity generation feeding about 85% of Israeli domestic energy demand. It is estimated that by 2025 all new power plants in Israel will use renewable energy resources for electricity generation. Still, gas will be used to produce methane, ethanol and hydrogen, the fuel of the future that supports transition to clean energy. The coronavirus pandemic inflicted challenges and opportunities upon the gas market in Israel. A prime opportunity is the entry of American energy major Chevron into the Israeli gas sector with the acquisition of American Noble Energy with a deal valued $13 billion that includes Noble’s$8 billion in debt.

The participation of Chevron in Israeli gas fields strengthens its investment portfolio in the Eastern Mediterranean and fortifies the position of Israel as a reliable gas producer in the Arab world. This is reinforced by the fact that the American energy major participates in the exploration of energy assets in Iraqi Kurdistan, the UAE, and the neutral zone between Saudi Arabia and Kuwait. Israel’s normalization agreement with the UAE makes Chevron’s acquisition of Noble Energy less controversial and advances Israel’s geostrategic interests and energy export outreach to markets in Asia via Gulf countries.

The reduction by 50% in Egyptian purchase of gas from Israel is a major challenge caused by the pandemic. Notably, a clause in the Israel-Egypt gas contract allows up to 50% decrease of Egyptian purchase of gas from Israel if Brent Crude prices fall below $50 per barrel. At another level, it seems that Israel should make use of Egypt’s excess liquefaction capacity in the Damietta and Idku plants rather than build an Israeli liquefaction plant at Eilat so that liquefied Israeli gas is shipped through the Arab Gas Pipeline to third markets.

When it comes to the West Bank and Gaza, energy challenges remain high. Palestine has the lowest GDP in the region, but it experiences rapid economic growth, leading to an annual average 3% increase of electricity demand. Around 90% of the total electricity consumption in the Palestinian territories is provided by Israel and the remaining 10% is provided by Jordan and Egypt as well as rooftop solar panels primarily in the West Bank. Palestinian cities can be described as energy islands with limited integration into the national grid due to lack of high-voltage transmission lines that would connect north and south West Bank. Because of this reality, the Palestinian Authority should engage the private sector in energy infrastructure projects like construction of high-voltage transmission and distribution lines that will connect north and south of the West Bank. The private sector can partly finance infrastructure costs in a Public Private Partnership scheme and guarantee smooth project execution.

Fiscal challenges however outweigh infrastructure challenges with most representative the inability of the Palestinian Authority to collect electricity bill payments from customers. The situation forced the Palestinian Authority to introduce subsidies and outstanding payments are owed by Palestinian distribution companies to the Israeli Electricity Corporation which is the largest supplier of electricity. As consequence 6% of the Palestinian budget is dedicated to paying electricity debts and when this does not happen, the amount is deducted from the taxes Israel collects for the Palestinian Authority.

The best option for Palestine to meet electricity demand is the construction of a solar power plant with 300 MW capacity in Area C of the West Bank and another solar power plant with 200 MW capacity across the Gaza-Israel border. In addition, the development of the Gaza marine gas field would funnel gas in the West Bank and Gaza and convert the Gaza power plant to burn gas instead of heavy fuel. The recent signing of a Memorandum of Understanding between the Palestinian Investment Fund, the Egyptian Natural Gas Holding Company (EGAS) and Consolidated Contractors Company (CCC) for the development of the Gaza marine field, the construction of all necessary infrastructure, and the transportation of Palestinian gas to Egypt is a major development. Coordination with Israel can unlock the development of the Palestinian field and pave the way for the resolution of the energy crisis in Gaza and also supply gas to a new power plant in Jenin.

Overall, the creation of an integrating energy economy between Israel, Jordan, Egypt, and Palestine can anchor lasting and mutually beneficial economic interdependencies and deliver dividends of peace. All it takes is efficient leadership that recognizes the high potentials.

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The EV Effect: Markets are Betting on the Energy Transition

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The International Renewable Energy Agency (IRENA) has calculated that USD 2 trillion in annual investment will be required to achieve the goals of the Paris Agreement in the coming three years.

Electromobility has a major role to play in this regard – IRENA’s transformation pathway estimates that 350 million electric vehicles (EVs) will be needed by 2030, kickstarting developments in the industry and influencing share values as manufacturers, suppliers and investors move to capitalise on the energy transition.

Today, around eight million EVs account for a mere 1% of all vehicles on the world’s roads, but 3.1 million were sold in 2020, representing a 4% market share. While the penetration of EVs in the heavy duty (3.5+ tons) vehicles category is much lower, electric trucks are expected to become more mainstream as manufacturers begin to offer new models to meet increasing demand.

The pace of development in the industry has increased the value of stocks in companies such as Tesla, Nio and BYD, who were among the highest performers in the sector in 2020. Tesla produced half a million cars last year, was valued at USD 670 billion, and produced a price-to-earnings ratio that vastly outstripped the industry average, despite Volkswagen and Renault both selling significantly more electric vehicles (EV) than Tesla in Europe in the last months of 2020.

Nevertheless, it is unlikely this gap will remain as volumes continue to grow, and with EV growth will come increased demand for batteries. The recent success of EV sales has largely been driven by the falling cost of battery packs – which reached 137 USD/kWh in 2020. The sale of more than 35 million vehicles per year will require a ten-fold increase in battery manufacturing capacity from today’s levels, leading to increased shares in battery manufacturers like Samsung SDI and CATL in the past year.

This rising demand has also boosted mining stocks, as about 80 kg of copper is required for a single EV battery. As the energy transition gathers pace, the need for copper will extend beyond electric cars to encompass electric grids and other motors. Copper prices have therefore risen by 30% in recent months to USD 7 800 per tonne, pushing up the share prices of miners such as Freeport-McRoran significantly.

Finally, around 35 million public charging stations will be needed by 2030, as well as ten times more private charging stations, which require an investment in the range of USD 1.2 – 2.4 trillion. This has increased the value of charging companies such as Fastnet and Switchback significantly in recent months.

Skyrocketing stock prices – ahead of actual deployment – testify to market confidence in the energy transition; however, investment opportunities remain scarce. Market expectations are that financing will follow as soon as skills and investment barriers fall. Nevertheless, these must be addressed without delay to attract and accelerate the investment required to deliver on the significant promise of the energy transition.

IRENA

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