Let us see how oil barrel prices have really fluctuated in recent weeks: in April, in fact, the European and Asian Brent benchmark, in parallel with the US West Texas Intermediate (WTI), decreased by about 1 U.S. dollar per barrel a day.
The WTI, however, is a mixture of different light and sweet American crude oil and is refined especially in the Midwest and on the Gulf Coast.
The benchmark known as Brent, instead, is oil extracted in the North Sea and it has greater and faster access to large markets. It is therefore used as a common benchmark for the broader oil market, while the WTI is now used above all as a reference for the American market.
It should be noted, however, that in the previous month of March, the two benchmarks had fallen by 26.5 U.S. dollars per barrel and 24 U.S. dollars per barrel respectively.
In short, the imbalance in the oil market fully affected the March futures prices in particular, while the April fluctuations were mainly due to the OPEC plus agreement reached on April 2, setting the price at 26.03 U.S. dollars per barrel.
The breakdown in negotiations between Saudi Arabia and Russia led to a Saudi super-production – at first of 10 million barrels a day and then immediately of 12 million barrels a day – with a subsequent choice by OPEC to agree on a “fall” in the oil barrel price at 60 U.S. dollars, given the Covid-19 pandemic crisis.
A mistake, but probably a too classically macroeconomic forecast that does not consider strategic and internal competition assessments within OPEC, which are often essential to set prices.
Later the oil barrel price increased immediately to 34.44 U.S. dollars per barrel on April 9, then to 16.04 U.S. dollars per barrel on April 22 and finally closed at 25.04 U.S. dollars per barrel.
In mid-April the WTI opened at 20.48 U.S. dollars per barrel, then reached 28.26 U.S. dollars and finally closed at 19.29 U.S. dollars, after having also reached the negative and paradoxical price of -37.63 U.S. dollars per barrel on April 20, 2020.
Moreover, on April 14, the International Monetary Fund published a forecast from which it could be inferred that the world GDP would decrease by 3% in the remaining period of 2020, while on April 15 the International Energy Agency published its own analysis which estimated a reduction ofthe oil demand by 9,300,000 barrels per day by the end of 2020.
Hence the WTI futures for May delivery, immediately collapsed to -37.63 U.S. dollars per barrel. Here, however, the real problem is storage.
Short-term contracts do not envisage it at all.
In fact, as many industry analysts maintain, this caused the fall in prices.
It is no coincidence, in fact, that U.S. commercial oil stocks have risen significantly, from 469,193,000 barrels on March 27 to 527,631,000 barrels on May 24. Hence, in all likelihood, the U.S. ETF Oil Fund – which plunged by 15% in the April 27 session alone, after the announcement of major changes in the composition of its portfolio – has fallen due to unexpected overstocking.
In other words, the U.S. Fund has stated it plans to remove all WTI contracts expiring in June from its portfolio and replace them with longer-term contracts, with obvious immediate losses.
Therefore,the US Oil Fund will be broken down as follows: 30% of the portfolio will be WTI contracts expiring in July; 15% of the portfolio will be WTI contracts expiring in August; then contracts expiring in the following month up to the remaining 10% expiring in June 2021.
The losses of the U.S. Fund are now -87% since the beginning of this year.
The U.S. Fund has an estimated value of 3 billion U.S. dollars. A financial phenomenon that has made it similar to other funds specializing in oil futures.
It is clear that this behaviour has contributed to the bearish trend of recent months and this has certainly not favoured Donald J. Trump’s election campaign.
Furthermore, the WTI decline can also be explained by the structural logistical shortcomings that characterize the oil transport system within the United States.
Nevertheless, based on the ideas of the current Algerian Chairman-in-office, OPEC predicts that the oil barrel price will be equal to 40 U.S. dollars at the beginning of the third quarter of 2020 and that, in any case, the oil market will return to balance before the end of this year. A very unlikely hope.
The new OPEC plus plus agreement, however, entered into force on May 1, 2020.
The first phase of the agreement signed on April 12, 2020envisaged that all OPEC members plus the others would reduce production by 9,700,000 barrels a day until June 30, 2020.
At the beginning of May, the Russian Federation and Saudi Arabia brought their production to 8,750,000 barrels a day (with a decrease of 2 million barrels per day), with the further intention of bringing their output to the limit of 8,500,000 barrels a day.
The first phase of the bilateral agreement signed on April 12 also envisaged that the producers nor belonging directly to OPEC would “voluntarily” cut production by at least 5,000,000 barrels a day over the same period of time.
It should be recalled that these important non-OPEC producers include Norway, Canada, Brazil and, obviously, the United States.
Nevertheless, the non-OPEC total cuts have reached – with some difficulty – just 4,100,000 barrels a day.
Indeed, according to Standard & Poor’s calculations, the United States decreased production by as many as 11,600,000 barrels a day and only for the week which ended on May 8.
Hence a decrease of 1.5 million barrels a day, compared to the level of 13,100,000 barrels a day reached on March 13, 2020.
Therefore, for the first time since February 2019 the U.S. production has fallen below 12,000,000 barrels a day.
Moreover, on April 30, 2020, the U.S. strategic oil reserves reached 636 million oil barrels, compared to a total maximum capacity of 714 million barrels.
According to the Oxford Institute for Energy Studies, however, global oil demand will decrease by as many as 11,400,000 barrels a day throughout 2020, before slightly increasing by 10,600,000 barrels a day in 2021.
Despite all possible statistical tricks, however, the unemployment rate has currently reached 14.7% in the United States and it is rising quickly.
This leads to a fall of about 30% in U.S. oil consumption, but the Russian Federation records a 4-6% GDP drop at least until the end of 2020.
Moreover, on April 24, the Russian Central Bank cut rates by 50 basis points to 5.5%, while the Russian inflation rate is expected to rise by 4.8% until the end of this year.
According to data of April 30 last, China shows an increase in the composite index (manufacturing + services) from 53 to 53.4, while the index of services alone has grown from 52.3 to 53.2.
However, the index of Chinese purchases in the manufacturing sector alone has decreased by two points, while the CAXIN index – which measures Chinese private SMEs – points to a small recession.
Chinese oil imports in April, in fact – driven only by public enterprises – increased by 4.5% year over year.
Chinese imports from Saudi Arabia, however, decreased by 90,000 barrels a day while, despite U.S. sanctions, Chinese purchases of Iranian oil rose by 11.3% as against the previous year.
Therefore, we are faced with a new distribution of geopolitical and oil control areas.
The alternative for China is between Iran, the core of the new Silk Road, and Venezuela, although both Russia and China have agreed to give Russia a primary role in Venezuela.
Hence the global geopolitical games are postponed to the return of a robust oil demand after the Covid-19 crisis, which will end only with a vaccine or a universally accepted therapy. On a geopolitical level, however, it will probably concern a new agreement between China, the United States and the Russian Federation.
An agreement that this time could see a real role of mediator for Italy, involving both ENI and governmental and private technical structures.
There are many issues to be considered in the relations between the United States, China and Russia: Russia’s alleged penetration into the North American electoral and political machinery and apparata; the commercial negotiations between the United States and China which, coincidentally, exacerbated during the oil price crisis; finally, the infra-US conflict regarding the reduction of local oil production.
It has to be said that if there is a recovery of the oil market, demand could reach 90-95 million barrels a day, but the country recording the greatest loss of production will certainly be the United States, which has the highest cost of oil barrel production.
Meanwhile, in its anti-coronavirus aid programme of April 30 last, the Federal Reserve envisaged direct support to U.S. oil and gas companies.
As many analysts maintain, however, several companies of the shale sector, which live only on high prices, would go bankrupt by the end of 2020.
In terms of global assessments, however, world oil demand is estimated to fall by 19,000,000 barrels a day during this quarter of 2020 and by 8,600,000 barrels a day throughout 2021.
Global oil supply is expected to decrease by 12,000,000 barrels a day since May to 88,000,000 next year.
OECD stocks have increased by 68,200,000 barrels a day to a total of 2,961,000,000, well over 46,000,000 barrels a day above the average of the last five years – a quantity worth 90 days of average demand.
Non-conventional crude oil production in the U.S., however, declined by 183,000 barrels a day with a peak until March 13, before falling by approximately 12,000,000 barrels a day on May 8.
There are currently 374 drills operating in the United States, of which 292 oil and 80 gas ones, plus 2 mixed ones.
They are 228 fewer than those recorded on April 9, 2020, the minimum level since 1940.
In short, the Covid-19 pandemic is redesigning all geopolitical scenarios, through oil, above all, but not only through it. Here not only energy counts, but rather the whole economic system which, however, is still currently oil-dependent.
The G20 has already put forward international cooperation proposals to cancel the debt of some of the poorest countries and for a coordinated response against the pandemic by the most technologically advanced countries.
Hence any radical transformation of energy systems entails a paradigm shift at geopolitical level.
According to the International Monetary Fund, no oil-producing country can make money with an oil barrel price at 40 U.S. dollars. Only Qatar barely can, but every country in the Middle East needs prices of at least 60 U.S. dollars per barrel.
However, there is more than the tax or productive breakeven point: the producing countries’ economic diversification is essential.
From this viewpoint, only Mexico, the Russian Federation and the United Arab Emirates could survive, while some others with less differentiated economies can still ask for loans or temporarily stop public spending.
Nevertheless, this depends not only on macroeconomic evaluations, but above all on political and structural issues: the presence of foreign manpower that can be easily sent away (Saudi Arabia); the possibility of using other forms of energy (Morocco) or the negative impact of some old Welfare State on the oil price (Algeria).
Other countries are, instead, particularly vulnerable: Iraq, which is currently also one of Italy’s main suppliers; Oman, Algeria, Nigeria, Ecuador, Angola, Surinam, not to mention Iran and Venezuela, where the oil issue is part of a severe international political crisis.All these countries can shortly fail or fall into an indefinite crisis, with unpaid salaries in the public sector and primary services largely reduced, as well as military crises and great political instability.
In some cases, this may lead to the expansion of “terrorism”, more exactly of the “sword jihad”, which can drive a wedge within the hotbeds of crisis and rule the States or the areas left by the old legitimate governments. It may also lead to the uncontrolled expansion of the great international crime, which can turn the failed States into bases to attack the still relatively healthy economies of some Western countries, and to connect the areas of illegality one another and hence turn the crime territories into a new great geopolitical player.
A further possibility – not to be ruled out at all – concerns the mounting of regional tensions, which could become a not entirely irrational option, at least for some producing countries.
Just think of the oil barrel price crisis triggering a final showdown between Iran and Saudi Arabia.
There will also be Asian or African countries that will benefit from the vertical fall in prices.
It should be recalled, however, that on April 20 last, the West Texas Crude contract expiring in May fell to -40.32 U.S. dollars.
The countries which will benefit – to a certain extent – from the fall in prices include Argentina -which is currently already prey to yet another default, but which will pay much less for energy imports- as well as the Philippines, India, Turkey and South Africa.
These countries will no longer be burdened by the cost of oil imports, but will also attract less investment from producing countries, whose availability of capital will collapse quickly.
Previously oil prices had fallen due to the expansion of the shale market in the United States, to lower global growth and to the slow, but stable shift to renewable energy in most consumer countries.
Then the Covid-19 pandemic broke out, which accelerated all these factors and, in fact, blocked the economy and saturated oil inventories and warehouses.
The world economy will not “recover” soon or, more exactly, will no longer be as it was before the pandemic.
Global Value Chains will become much shorter and many mature, but essential productions will go back to the countries which, in the times of rampant globalization, moved everything – except for high technology and finance – to countries with low labour costs and low taxes.
The producing countries’ adaptation to the new context will certainly be slower than needed.
The large solar energy basin planned by Mohammed Bin Salman’s Vision 2030 was stopped indefinitely last November, while the privatization of Saudi Aramco has now proved to be a failure.
Once the profitability of the Saudi oil has ended – and hence the special relationship between the United States and Saudi Arabia, as well as the U.S. penetration in the Middle East -currently a phase of great instability in the relations between Saudi Arabia and Iran is beginning, in which Iran could play other cards besides the purely military ones.
However, the Iranian oil extraction cost is higher than the Saudi one.
The Russian Federation “falls” at an oil barrel price of 40 U.S. dollars and, if it cannot control its internal areas and the border with China and the Caucasus, it is very easy to imagine what could happen.
Even the United States is not in a better situation.
Shale oil is the biggest source of employment in Michigan, Arkansas and Ohio. These are essential States for the re-election of Donald J. Trump and surely the President will do everything to support the workers-voters and these States.
The end of the oil economy is near – or probably it has already arrived – and no one can imagine what will happen to energy markets and to our economies in the near future.
Covid-19 Impact on Africa’s Energy Sectors: Challenges and Opportunities
African ministers representing around two-thirds of the continent’s energy consumption, 60% of GDP and nearly half of its population met with global energy leaders via videoconference on 30 June 2020. As Africa’s energy sector faces the dual impacts of the Covid-19 pandemic and global economic recession, participants agreed that sound government policies and enhanced investment are more important and necessary than ever to enhance the continent’s economic transformation; ensure sufficient, affordable, reliable energy for all citizens; and drive inclusive, just and sustainable, energy transitions.
2020 started as a year of optimism across Africa’s energy sector. But continued energy progress is now uncertain, as Africa – like the rest of the world – faces the wide-ranging impacts of the Covid-19 crisis. The International Monetary Fund expects sub-Saharan Africa to enter into recession for the first time in 25 years as a result of the coronavirus crisis, with growth falling to -3.2% in 2020 from 3.1% in 2019. Many African economies also have limited fiscal capacity and are heavily indebted, undermining their ability to absorb these economic shocks. The energy sector has not been spared.
Electricity – Participants welcomed the good progress made in many African countries in recent years, including accelerating growth in renewable energy and increasing access to electricity, but expressed concern that the Covid-19 pandemic and global economic shocks are testing the resilience of the energy sector in countries across Africa. The Covid-19 crisis has severely impacted progress on energy access and lockdown measures have put off-grid developments at risk and weakened the financial health of decentralized service providers. Confinement policies and the consequent drop in energy demand in some countries is increasing pressure on power systems, calling into further question the financial health of state-owned utilities that were already under financial stress.
Oil and Gas – Participants also noted that the disruption to global oil and gas markets has delivered a sudden and sharp drop in export revenue, increasing fiscal pressures on key producer economies across the continent. As a result, new investments may face delay or cancellation in the post Covid-19 global and energy sector financial environment. Continued uncertainty could create new risks, compounding security and sustainability challenges in the longer term. At the same time, lower oil prices could make access to clean fuels and modern cooking ones more affordable, as liquid petroleum gas prices (LPG) are 40% lower that 2019, but also considerably more volatile. Expansion of LPG services could create new jobs in manufacturing, transport, bottling, distribution as well as retail. Also, the importance of securing the African energy supply through modern and larger storage capacities over the continent was noted.
Sustainable, Inclusive Transitions – Participants also underscored the importance of supporting Africa’s energy transitions. This includes strengthening the enabling environment for investment, both in infrastructure and all relevant technologies, and continuing to prioritise attainment of the Sustainable Development Goals while ensuring just and inclusive outcomes. The importance of strengthening and developing local capacity and capabilities, especially through training, was also largely emphasized by many Ministers. Finally, participants welcomed the IEA sustainable recovery plan to help guide governments – including in Africa — through and beyond the crisis.
Key conclusions – Participants stressed the following top recommendations going forward:
- An efficient secure, affordable and sustainable power sector is vital to Africa’s economic recovery and transformation, and its ability to enhance resiliency to other challenges over time.
- Enhancing investments in new grids, (national and mini-grids) and in the off-grid sector as well as in generation facilities are essential to ensure a resilient and reliable power sector that can drive economic recovery.
- Setting bold energy sector priorities and plans today can enable much-needed investments to stimulate broader economic growth tomorrow, including creating employment opportunities, supporting new skill development, unleashing the creativity of African entrepreneurs across the African continent and creating wealth.
- Africa’s oil and gas exporters, who have been severely impacted by the crisis, can seize the opportunity to re-evaluate their strategies to generate the most value and jobs across their economies and to promote broader economic diversification.
- To secure energy supplies and development in many Africa countries, increase oil storage capacities and product stocks; upgrade refineries to produce higher quality products that are less polluting; and build local capacity and skills through training.
- Low oil prices, in particular liquid petroleum gas (LPG), could open the door to advance clean cooking access; LPG services could also create jobs.
- Maintaining focus on universal access to electricity and modern cooking is essential, especially in Africa; African governments and other partners should continue to work together to ensure progress toward SDG7.
- Enhanced regional and international cooperation can play an important role in helping to build robust, affordable, sustainable and resilient energy systems across the continent.
The outcomes of this ministerial roundtable will be shared with key global decision-makers, governments, international financial institution, business leaders including for the IEA Clean Energy Transitions Summit on 9 July 2020 and AUC-IEA Ministerial Forum in South Africa in November 2020. The outcomes will also help guide and inform the IEA’s increasing efforts in Africa, including helping to inform key decision-makers from governments, companies, investors and organizations.
From Russia with Gas: Dynamics of Nord Stream 2
Nord Stream 2 is one of the latest gas pipeline projects of Russia, which seeks to export gas to Europe through the Baltic Sea. After the successful experience from Nord Stream, European companies agreed to build the second version with the Russian partner Gazprom in 2017. Since then, the pipeline has been in limelight because of US threat of sanctions as they fear Russian involvement will endanger European security. However, the European Union (EU) members who are participating in the pipeline project have differed from the American view and have already initiated the construction process. The dynamics of the Nord Stream 2 is very much relevant to the contemporary European geopolitical affairs, and hence a rational analysis is the need of the hour.
Energy concerns in Europe
The EU has called for its members to expand the diversity of their gas supply options and liberalize the energy market, so as to avoid monopoly and sole dependency on a single player, for example the US which has significantly increased their gas sales in Europe since the last decade. According to the ‘Quarterly Report on European Gas Markets’, the American share of gas exports has increased with 9% in the last quarter of 2019, while Norway dropped with 8%. It is widely anticipated that Norway will export less gas in the next 20 years, therefore EU members and especially Germany have been looking for other natural gas suppliers to the fulfill the 30% domestic shortage.
Pivot to Russia
The United States is one of the major gas exporters to Europe, but its expensive Liquefied Natural Gas (LNG) can fill only 7-8% of the total energy shortage. For that reason, European countries started diversifying their partners, and to their rescue came Russia which has some of the world’s largest oil and gas fields. Gazprom, one of the largest state-owned energy companies of Russia is now regarded as the largest natural gas exporter to the European Market. In 2018, Gazprom’s gas exports to Europe recorded the highest growth at 201.9 billion cubic meters.
According to the fact sheet on Nord Stream 2, from the perspective of the EU there are numerous benefits which can be achieved from the pipeline project. The project has already provided a lot of jobs to the European community and has also involved local shipping companies like the Blue Water Shipping, a Danish logistics company which has obtained a contract of 40 million euros to transport the pipes for the construction of the Nord Stream 2 pipeline.
American Sanctions and European reactions
The US administration had appealed to Germany to back out from all dealings with the major shareholder Gazprom, as they were seeking to impose sanctions on their activities. However, Germany rejected the idea of sanctions and even called out for a joint European defence against draconian American measures, and accused the Washington for interfering in the internal affairs of European countries, since the sanctions also threatened the European companies involved in the pipeline. Niels Annen, the German Minister of State at the Federal Foreign Office, had made some remarks relating to the U.S. sanctions: “If we want to maintain strong unity of purpose in dealing with Russia, extraterritorial and unintended consequences of US sanctions on European companies must be avoided”.
Nevertheless, Washington still argues that imposing sanctions is a justified measure toward “protecting Ukrainian interests”, since it is alleged that the Nord Stream 2 would replace the dependency on Ukrainian gas exports. However, the reality of sanctions is something different. First, the legislation made by the United States Congress Committee has not been proceeded yet, and while the pipeline is expected to be completed by the end of 2020, therefore it is the European companies which will face the wrath of the sanctions, without actually stopping the construction process of the pipeline.
Another major argument which the Washington has used to justify the sanctions is a peculiar concern that Moscow may take advantage of energy-dependent Germany, and can use gas exports as a “raw material blackmail”, by giving threats of limiting the exports if Berlin doesn’t agree with the political positions of the Kremlin. However, this is actually a win-win situation both for Russia and Germany, where Germany will be able to satisfy the growing domestic demands of energy and for Russia the income from the gas will help in soothing its fluctuating economy.
The Danish factor
To begin the construction phase of the Nord Stream 2 without any legal hurdles, a request to all Baltic and Nordic countries was sent in April 2017. At the outset, Denmark hesitated to allow because of some internal political concerns, however it later approved when another request was sent for an alternative route, but a more expensive one, which would be built south of the Bornholm Island. Finally in 2019, the Danish Energy Agency granted Nord Stream 2 a construction permit for the South-Eastern Route, which would stretch 147 kilometres in the Danish Exclusive Economic Zone (EEZ).
According to Hans Mouritzen, Senior Researcher at Danish Institute for International Studies (DIIS), it was highly recommended to approve of the pipeline going through Danish waters, south of the island, Bornholm. A pipeline drawn north of Bornholm would delay the project with 3 to 4 months and the extra expenses would be around $114 million, a bill that would be for European consumers to pay, had Denmark not agreed to the request.
The future scenario of Nord Stream 2 can go one in two ways from a European point of view. First, by being a part of NATO, European countries will be compelled to act in accordance with the multilateral agreements and thereby granting the US their global sovereignty, where they will be able to control and manipulate the economic cooperation between Europe and Russia, and Washington will not miss any opportunity to jeopardize the operations of Nord Stream 2. With the possibility of increased cooperation towards the US and decreased cooperation with Russia, the European countries will have more to lose in the long run.
In the second scenario, Europe cooperating more closely with Russia will bring additional trade opportunities in numerous areas, where Nord Stream 2 is just the beginning. Bringing economic stability to Russia will benefit in thwarting unilateral hegemonic interests of a single country in the world order. Pending that the US keeps Ukraine as a hostage of justice by sanctioning Russia, it vehemently prevents Europe and Russia to develop closer ties. While it is difficult to even imagine the US withdrawing sanctions from Russia, nevertheless it is possible to imagine that European countries will not abide by the external pressures. A better trading balance between Russia and the US in contemporary times will heal the historical wounds of Europe.
An Insight into Egypt-Russian Cooperation on Nuclear Power
Last October 2019, during the first Russia-Africa Summit, Russian President Vladimir Putin and Egyptian President Abdel Fattah al-Sisi reaffirmed commitment to scale-up cooperation in various economic sectors and particularly expedite work on the special industrial zone and the construction of proposed four nuclear power plants, raising hopes for an increased power supply in Egypt.
Seated in a sizeable conference hall on October 23, Putin told the Egyptian delegation: “As for our bilateral relations, we continue to implement ambitious projects that have been coordinated by us, including a nuclear power plant and an industrial zone in Egypt. We are working very actively in these areas, and we are planning to invest $190 million in infrastructure development projects and to attract up to $7 billion.”
In his response, Abdel Fattah el-Sisi warmly expressed gratitude for holding the first Russia-Africa Summit, added that relations have had a long history in many fields and spheres, starting with Russia’s support to the liberation movement, its contributions helped many African countries to attain practical results based on mutually beneficial cooperation in Africa.
“I would like to point out that we view Russia as a reliable partner of the African continent. We hope very much that Russia will be working in Africa in all spheres and fields, including in that of the development, as well as in the financing of infrastructure projects on the continent and in particular in energy and road construction,” the Egyptian leader told Putin.
Egypt attaches great importance in its relations with Russia. But what is particularly important for their bilateral relations, Abdel el-Sisi assertively reminded: “I would like to assure you of our high appreciation of our bilateral relations, which are developing in various formats, especially after we signed a comprehensive cooperation agreement. We sincerely hope that our relations will continue to develop in all fields and spheres.”
“As for the nuclear power plant, we set a high value on our bilateral cooperation. We strongly hope that all topics related to this project will be settled without delay so that we can start implementing the project in accordance with the signed contract. Mr President, we hope that the Russian side will provide support to nuclear energy facilities in Egypt so that we can work and act in accordance with the approved schedule,” he added, in conclusion.
Related Russian ministries, departments and agencies are, usually, tasked to coordinate and implement bilateral agreements. In the case of nuclear power, State Atomic Energy Corporation is the main player. According to the description made available on its website, State Atomiс Energy Corporation, popular referred to as Rosatom, is a global leader in nuclear technologies and nuclear energy. It is established 2007 [a non-profit entity type] and headquartered in Moscow.
In fact, Rosatom has shown business interest in Africa. Over the past two decades, at least, it has signed agreements that promised construction of nuclear energy plants and training of specialists for these countries. The Director General, Alexey Likhachev, emphasized these points at the Russia-Africa Summit that Rosatom has already been cooperating with more than 20 African countries, in particular, building the largest “El-Dabaa” NPP in Egypt with an installed capacity of 4.8 GW.
While still there in Sochi, Alexey Likhachev noted that more reliable, affordable and stable energy is the basic condition for achieving sustainable development goals. “We can make a qualitative breakthrough in Africa in terms of technological development and the use of nuclear technology in the next few years,” he said during one of the plenary sessions.
According to Reuters, the Egyptian Electricity and Renewable Energy Minister Mohamed Shaker said earlier at the International Atomic Energy Agency’s ministerial conference that Russia had asked for $12 billion for the nuclear plants, a reliable solution for energy deficit. In this regard, the development of nuclear energy is important for Egypt.
“We made significant strides in the preparation of all strategic agreements [regarding the construction of a NPP in Egypt] with our strategic partner, Russia. We have also completed all technical, financial and legal aspects,” he said.
Shaker said that Egypt decided to build an NPP due to the need to redress the energy balance to reduce emissions of greenhouse gases and to save hydrocarbons which the country has earmarked for petrochemicals. “We have few traditional sources of electricity generation. The potential of hydro energy is gradually waning. Following the adoption of a special plan to cut greenhouse gas emissions we stopped using coal plants, however, energy consumption will grow,” according to the Minister.
It raises many questions about practical implementation of the several [paperwork] nuclear agreements that were signed with African countries. According to historical documents from the Ministry of Foreign Affairs and information from published media reports, specifically about Egypt, the proposed Russian nuclear plants has a long history, at dating back to Soviet days.
Nuclear deals with Russia
Egypt has been considering the use of nuclear energy for decades. The Nuclear Power Plants Authority [NPPA] was established in 1976, and in 1983 the El Dabaa site on the Mediterranean coast was selected.
Egypt’s nuclear plans, however, were shelved after the Chernobyl accident. However, in 2006, Egypt announced it would revive its civilian nuclear power program, and build a 1,000 MW nuclear power station at El Dabaa. Its estimated cost, at the time, was $12.5 billion, and the plans were to do the construction with the help of foreign investors. In March 2008, Egypt signed an agreement with Russia on the peaceful uses of nuclear energy.
Early February 2015, President Putin and President Abdel Fattah el-Sisi signed an agreement to set up a nuclear plant in Dabaa, on the Mediterranean coast west of the port city of Alexandria, where a research reactor has stood for years. The deal was signed after a comprehensive bilateral discussion held and both expressed high hopes that Russia would help construct the country’s first nuclear facility.
Interfax news agency reported that Sergei Kiriyenko, the Head of the Rosatom state corporation, had presented to the authorities in Egypt, Russia’s proposals on construction of the first nuclear power plant in that country. The proposal is for construction of four power blocks, each with 1,200 megawatts of capacity.
Rosatom and Egypt’s Electricity and Energy Ministry signed the agreement on development of the nuclear plant construction project in February 2015. The project assumes that Russia will provide an intergovernmental loan to Egypt. Commercial contracts would be concluded once the intergovernmental agreements on construction of the facility and on the loan were signed.
In assertive remarks carried by local Russian news agencies, Kiriyenko said at that time that the technical and commercial details of the project were not finalized, but envisaged the new technology with strong safety measures taken into account. That included the lessons learned during the March 2011 Fukushima disaster in Japan, as well as a loan requested by the Egyptian government for the project construction.
Russia and Egypt Courtship
Interestingly, Egypt’s dreams of building nuclear plant has spanned several years, with agreement that was signed [as far back in March 2008] during an official visit to the Kremlin by the ousted Egyptian President Hosni Mubarak, and then through another former Egyptian leader Mohammed Morsi who discussed the same nuclear project with Putin in April 2013 in Sochi, southern Russia.
Mohammed Morsi had sought $4.8 billion loan from International Monetary Fund [IMF], and had also asked for an unspecified amount of loan from Russia to build the nuclear power plant. He hoped Russia would accelerate and expedite efforts, and provide financial backing for the project during his political administration.
The same year, following the revolutionary events and after a wave of mass anti-government actions, the army ousted the Moslem Brotherhood and their leader Mohammed Morsi, resulting in postponing or suspending the nuclear construction agreement. Since July 2013, Abdel Fattah el-Sisi has been in power after removing Morsi from office.
It is well-known fact that Egypt had long ties with the former Soviet Union. Those bilateral diplomatic ties resulted in several development projects in late 1950s including the building of the Aswan dam. During the Soviet times, many specialists were trained for Egypt. Hosni Mubarak, a former pilot, received training in what is now Kyrgyzstan, and further studied at the Soviet Military Academy in Moscow in the 1960s.
Egypt, first, began its nuclear program in 1954 and in 1961, acquired a 2-megawatt research reactor, built by the Soviet Union. Plans to expand the site have been decades in the making but repeatedly fell through. In 2010, that reactor suffered a breakdown, though no radiation was reported to have leaked out.
Renewable Energy Sources
Egypt is classified as having a high power system size [24,700 MW installed generation capacity in 2010 with more than 40 grid-connected plants]. As of 2010, 99% of the Egyptian population has access to electricity.
Since the early 2000s, power outage rates and durations, as well as distribution system losses, have trended downwards indicating that distribution companies have improved their overall customer service quality over the past decade; however, Egypt has seen a great weakening in its supply security. The power system’s generation reserve capacity declined from 20% in the early 2000s to 10% by the 2010s.
The weakening of Egypt’s supply security has caused widespread social issues in the 2010s. To deal with the extremely high demand for electricity, rolling blackouts and power cuts were implemented throughout the summer of 2012 causing great tension between the government and the people of Egypt.
Egypt has Renewable energy projects. The current energy strategy in Egypt [adopted by the Supreme Council of Energy in February 2008] is to increase renewable energy generation up to 20% of the total mix by 2020. The energy mix includes the use of hydropower, solar wind and nuclear.
Hydropower – The majority of Egypt’s electricity supply generated from thermal and hydropower stations. There are four main hydroelectric generating stations currently operating in Egypt. Experts have questioned why Egypt could not maximize the use of the river Nile that stretches 6.695 kilometers, especially for agricultural, industrial and generating energy for the region.
Solar – Egypt has a high solar availability as a result of hot desert climate.
Wind – Egypt has a high potential for wind energy, especially in the Red Sea coast area. As of 2006, 230 MW of wind energy was installed, and again 430 MW of wind power was installed in 2009.
In March 2015, British Petroleum [BP] signed a $12 billion deal to develop natural gas in Egypt intended for sale in the domestic market starting in 2017. Egypt is an important non-OPEC energy producer. It has the sixth largest proved oil reserves in Africa. Over half of these reserves are offshore reserves. Although Egypt is not a member of OPEC, it is a member of the Organization of Arab Petroleum Exporting Countries.
Swinging for Nuclear Power
Nuclear experts have also shown some concern. Lack of electricity supply is a huge restraint on African economies and specifically for Egypt, nuclear power could be an excellent source of large-scale grid electricity. Nuclear is not expensive compared with other energy sources. But for African countries to develop nuclear power, the governments must first establish the necessary legal and regulatory framework.
The project must comply with all international standards and regulation on nuclear power. Africa has a shortage of skills for nuclear power. However, Africa has a shortage of skill for any energy technology, so developing nuclear power would necessarily mean increasing African skills, which is in itself a good thing.
Despite the long technical negotiation process, the current Egyptian leadership, indeed, shows high optimism toward adoption of nuclear power as an important and indispensable source of energy that will underpin sustainable growth of the economy in the country. The four blocks of the nuclear power plant will cost about $20 billion, according a website report of the Egyptian Ministry of Electricity and Renewable Energy.
Apparently, experts expect that such mega-projects would have thorough discussion in parliament, financing sources broadly identified and approved by the government. Egypt has yet to make an official announcement of the tender for the contract to build its nuclear plants. Media reports have also revealed that nuclear companies from China, the United States, France, South Korea and Japan seek to take part in international tender.
Egypt’s Economic Potentials
With over 100 million inhabitants, Egypt is the most populous country in North Africa, popular referred to as Maghreb region and part of the Arab World. Egypt is the third most populous country after Nigeria and Ethiopia in Africa. About half of Egypt’s residents live in urban areas, with most spread across the densely populated centers of greater Cairo, Alexandria and other major cities along the Nile Delta.
The economy has been transforming from one based upon agriculture to an economy with more emphasis on services sector, for example its fast-growing tourism and hospitality, and to some extent manufacturing. It has experienced a fall in Foreign Direct Investment [FDI] to the country.
Egypt’s economy mainly relies on sources of income: tourism, remittances from Egyptians working abroad and revenues from the Suez Canal. Egypt has received United States foreign aid [an average of $2.2 billion per year], and is the third-largest recipient of such funds from the United States.
Remittances, money earned by Egyptians [estimated 2.7 million] living abroad and sent home, reached a record $21 billion in 2012, according to the World Bank. Tourism is one of the most important sectors in Egypt’s economy. More than 15.8 million tourists  visited Egypt, providing revenues of nearly $11 billion. The tourism sector employs about 12% of Egypt’s workforce.
With one of the largest and most diversified economies in the Middle East, which is projected to become one of the largest in the world in the 21st century, Egypt has the third largest economy in Africa. Egypt is a founding member of the United Nations, the Non-Aligned Movement, the Arab League, the Organization of Islamic Cooperation and the African Union.
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