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Syria, Turkey and Israeli gas – cui prodest?

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Turkey was among the first world nations to recognize the State of Israel, and for a long time Ankara and Tel Aviv maintained a close economic and military partnership. However, since Recep Tayyip Erdogan became prime minister in 2003 and cast himself as the sole guardian of Palestinian statehood, relations between the two countries have been going downhill.

Important milestones along this downward path were Israel’s Operation Cast Lead in Gaza (late 2008 – early 2009); Erdogan’s demonstrative squabble with Israeli President Shimon Peres at the World Economic Forum in Davos (2009); Israeli Navy’s seizure of the Turkish ship Mavi Marmara, which was attempting to break through the Israeli blockade of Gaza to bring aid to the Palestinian enclave (2010); the US embassy move from Tel Aviv to Jerusalem, which resulted in a clampdown on Palestinian protests (2018) and, finally, the so-called “deal of the century” unveiled by President Donald Trump in January, and its planned implementation by Israel in the near future.

Erdogan even accused Israel of state terrorism: “We are dealing with terrorists, but terrorists are not your problem, because you are a terrorist state yourselves. History is recording what you as a terrorist state have done in Gaza and Jerusalem.”

Last year, Turkey accused Israel (and France, but for some reason not the US!) of trying to create a Kurdish state in Syria built upon the “People’s Defense Units” and the Kurdistan Workers Party.

Israel lashes back with equally harsh rhetoric, coupled with appropriate foreign policy moves. This has already led to a rapprochement with Greece and Cyprus (the IDF even conducts joint exercises with the Cypriot military), and mending fences with Turkey’s other regional rivals: Saudi Arabia and the United Arab Emirates.

In an October 2019 tweet condemning a new Turkish military operation in Syria, Israeli Prime Minister Benjamin Netanyahu said that “Israel is prepared to extend humanitarian assistance to the gallant Kurdish people.”  In January 2020, the Israeli Ministry of Defense put Turkey on its list of threats to the Jewish State. “A rapprochement with Hamas, vocal insults against Egypt and the Gulf kingdoms (Turkey recently accused them of betrayal for their failure to condemn Trump’s Middle East peace plan) lead to an even greater isolation of Ankara. Today, Turkey has just a handful of friends in the Middle East: Qatar, Iran and Hamas,” the newspaper Haaretz wrote with satisfaction.

Turkey has designated Israel as an adversary in a bid to ramp up its prestige in the region. It looks like this geopolitical game has backfired though, as Israel has been normalizing relations with the pro-US regimes of several Arab countries, which Tel Aviv now values more than having good relations with Turkey, which, unlike the Gulf monarchies, is for various reasons unable to create any problems for the Jewish state. And yet…

The coronavirus pandemic has already added some changes to this picture though. Last April, Turkey “for humanitarian reasons” sent Israel, albeit on a commercial basis, a large batch of facemasks, protective overalls and disposable gloves. A month later, Israel returned the favor by dispatching to Istanbul an El Al cargo plane (the first El Al flight to Turkey in a decade), loaded with medical supplies and equipment.

A warming of relations between countries may not be limited to such moves, and natural gas will be of great help in establishing long-term cooperation between them (!!!). Industrial-scale reserves of natural gas were discovered in Israel’s exclusive economic zone between 2009 and 2013, and in March 2017, it started exporting gas to Jordan. President Erdogan has long been trying to turn his country into an energy hub for Europe. Turkey has no hydrocarbon reserves of its own, then why not take control of such reserves elsewhere? So Turkey decided to build a pipeline to pipe Russian, Azeri, Iranian, Turkmen, and Kazakh gas to the West. And also to Israel.

Only recently, the London-based online news outlet, Middle East Eye (MEE), reported that Israel intended to fully restore diplomatic relations with Ankara due to shared interests, which, according to MEE, included the situation in Syria and natural gas transportation. Moreover, according to some Israeli and Turkish media outlets, the two countries are negotiating the demarcation of zones of their economic interests in the Eastern Mediterranean, and the construction of a gas pipeline. TRT World, a Turkish state international TV news channel,emphasized that Israel refused to sign up to a declaration condemning Turkey’s actions in Libya, already signed by Greece, Egypt, Cyprus, the United Arab Emirates and France. And the newspaper Turkish Daily News openly recognized Ankara’s interest in the new gas pipeline.

This issue is not new. Back in July 2017, Israel and Turkey agreed to build a pipeline connecting the two countries. Simultaneously, Israel was holding similar talks with Cyprus, Greece and Italy. Israel eventually opted for the second route. Notably, many experts in Israel itself view this agreement as a PR stunt. They argue that the project is unreasonably expensive, technically very complex, and also that Italy has not yet officially confirmed its participation in it. 

In addition, Turkey is doing and will obviously continue doing everything in its power to make sure that this pipeline is never built. Erdogan has already said that “no project in the Mediterranean can survive either economically, legally, or diplomatically without Turkey.”

This is not just an empty threat: Turkish warships are already cruising off the coast of Cyprus and forcing other countries’ research and geological exploration vessels out of the area.  The Turkish president made a significant reservation here saying that Ankara is interested in negotiations with any country except Cyprus, which means also with Israel.

Idealistic as their political rhetoric may be, in their foreign policy Israel and Turkey are guided by the principles of Realpolitik, since the Jews are just as pragmatic as the Turks. This is proved by the fact that Israel is now getting most of its oil imports from Azerbaijan via Turkish territory. Besides, Turkey happens to be quite chummy with Iraqi Kurdistan, even though it portrays itself as the center of the Kurdish movement in the entire region. Under the circumstances, the sheer fact that Erbil is at loggerheads with the Kurdistan Workers Party, active in Turkey, and its allies in Syria is enough reason for Ankara to maintain good relations with the leaders of Iraqi Kurdistan.

Also noteworthy is Israel’s restrained position, more restrained that even that of Ankara’s NATO allies, regarding such highly sensitive issues as the  Turkish occupation of the northern part of Cyprus and recognition of the genocide of Armenians in the Ottoman Empire.

Getting back to the subject of Jewish and Turkish pragmatism, laying a hypothetical gas pipeline along the coast of Syria or in its territorial waters will be much cheaper than the deep-water route and will be easier both technically and politically. Unreal? Well, the East is a riddle, wrapped in a mystery, inside an enigma, and highly unpredictable to boot. The choice of such a route promises considerable economic benefits to all project participants. Even more importantly, if implemented, it will lead to a dramatic change inside the Ankara-Damascus-Jerusalem triangle and in the geopolitical configuration of the better part of the Middle East.

True, the Syrian leadership considers Israel and Turkey as hostile states, but it should have in mind the fact that such a project would bring Syria back into the system of international relations and help attract investments vital for the country’s economic reconstruction. Even Iran will have to accept such a prospect as a given, if it really wants to see the revival of Syria.

According to President Bashar Assad, the Syrian crisis was inspired from the outside in order to prevent the construction an Iranian oil pipeline running across Syrian territory. The construction of a new gas pipeline could be a giant step towards resolving the situation.

By the way, this should also suit the United States in many ways: on the one hand, Israel remains America’s main strategic ally in the Middle East. On the other, the Americans are interested in normalizing relations with Turkey, which has turned into a leading regional power. As recently as this past March, US Secretary of State Mike Pompeo emphasized that improving relations with Israel is beneficial to all countries in the region and is even the main factor of their prosperity. Undoubtedly, Ankara was among the countries this message was addressed to.

Russia should become the moderator of negotiations between Ankara, Damascus and Jerusalem and, therefore, reap the political dividends, considering the level and nature of its relations with all participants of what may presently look like a hypothetical project. There is simply no one else out there fit for the job. 

From our partner International Affairs

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Hydrogen Could Be A Key Player In The Recovery And Resilience Plan

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Thanks to the contribution of vaccines, the Covid-19 pandemic is slowly beginning to abate and gradually lose its aggressiveness, with the consequent reduction of its impact on people’s health worldwide.

However, while the health effects of the pandemic appear to be fading, the negative economic effects of a year and a half of lockdown and forced closure of many businesses are being felt heavily at a global level and seem bound to last well beyond the end of the health emergency.

With a view to supporting and encouraging the “restart” and revival  of the economy, the European Union has launched a “Recovery and Resilience Plan”, allocating a huge amount of funds that shall be used in the coming years not only to help countries in difficulty with contingent measures, but also to stimulate economic and productive growth capable of modernising production models with specific reference to environmental balance, which is increasingly facing a crisis due to the use of non-renewable, highly polluting energy sources.

Italy will receive over 200 billion euros in European funds to develop its own projects to get out of the economic-pandemic crisis and rightly wants to use them not only to plug the leaks caused by the various ‘lockdowns’ in the national productive fabric, but also to implement a series of strategic projects capable of making not only the productive sectors, but also the public administration and the health and judicial systems more efficient.

In short, the “Recovery and Resilience Plan” that is currently coming to the fore may prove to be a powerful driving force for Italy’s development and modernisation.

The projects submitted by Italy to the EU institutions include an initial allocation of over 200 million euros – out of the 47 billion euros planned for the next decade – to promote research and development in the field of renewable energy and particularly in the hydrogen sector.

Why Hydrogen?

Hydrogen is potentially the most abundant source of “clean” energy in the universe. It is versatile, safe and reliable; when obtained from renewable energy sources, it produces no harmful emissions to the environment.

Nevertheless, it is not available in nature in its gaseous form – which is the only one that can be used as an energy source – as it is always bound to other elements, such as oxygen in water and methane as a gas.

The traditional processes used to “separate” hydrogen from oxygen in water and from methane use up large amounts of electricity, which makes the processes not only very expensive, but also highly polluting, with the paradox that, in order to produce a clean energy source, the environment is “polluted” anyway, especially if – as has been the case until recently – the electricity needed is produced with traditional non-renewable energy sources (coal, gas and oil).

The best source of hydrogen in gaseous form is the sea. Electrolysis can easily separate hydrogen from oxygen and store it in gaseous form for use as an energy source.

The electrolytic cells used to develop the process use up large amounts of energy and, fortunately for us, science is finding a way to produce it without polluting, using solar, wind and, above all, sea wave energy.

The use of marine energy creates a sort of “circular economy” for hydrogen production: from the practically inexhaustible primary source of ocean water, hydrogen can be extracted with the energy provided by wave and tidal motion.

Forty per cent of the world’s population live within 100 kilometres from the sea and this shows the potential of sea wave and tidal energy as an engine for sustainable development in economic, climate and environmental terms.

Nowadays modern, non-invasive tools are available to extract electricity from sea waves, such as the “penguin”, a device manufactured in Italy, which – placed 50 metres deep – produces electricity without harming marine flora and fauna.

Another example of Italian scientists’ intelligence and creativity is the Inertial Sea Wave Converter (ISWEC), a device housed inside a 15-metre-long hull which, occupying a marine area of just 150 square metres, is able to produce 250 megawatts of electricity a year, thus enabling to cut emissions into the atmosphere by 68 tonnes of CO2.

With these devices and the other ones that technology will develop over the next few years, it will be possible to power electrolytic cells for the production of hydrogen in gaseous form on an industrial scale, at levels that – over the next 15 years – will lead to the production of at least 100,000 tonnes of “green” hydrogen per year, thus enabling to reduce air pollution significantly, with positive effects on the economy, the environment and the climate.

In the summer of 2020, the European Union launched a project called the “Hydrogen Strategy”, with a funding of 470 billion euros, intended for research and production projects capable of equipping EU countries with electrolysis tools to produce at least one million tonnes of “green” hydrogen by the end of 2024.

The fight against CO2 emissions continues unabated: in the United States which, after Trump’s Presidency, has reaffirmed its commitment to reducing emissions; in China which, in its latest five-year plan, has forecast a 65% reduction in carbon dioxide emissions into the atmosphere by the end 2030; in Europe, which has always been at the forefront in the creation of devices for producing wave and tidal energy and exports its technologies to the United States, Australia and China.

According to the Hydrogen Council, an association of over 100 companies from around the world that share a common long-term vision for a transition to hydrogen, in the future Europe and China will compete and cooperate in the production of sea wave and tidal energy and in the related production of “green hydrogen”.

With its 14th five-year plan, China, in particular – after having been for decades, during its whirling economic development, one of the main sources of CO2 emissions into the atmosphere and of global pollution – has undertaken the commitment “to develop and promote the harmonious coexistence between man and nature, through the improvement of efficiency in the use of resources and a proper balance between protection and development”, as clearly stated by its Minister of Natural Resources Lu Hao.

It might sound like the sweet-talk and set phrases of a politician at a conference.

In the case of China and its Minister of Natural Resources, however, words have been turned into deeds.

As part of the Roadmap 2.0 for Energy Saving Technology and New Energy Vehicles, China has set a target of one million fuel cell vehicles and two million tonnes of hydrogen production per year by the end of 2035.

The China Hydrogen Energy Industry Development Report 2020 forecasts that, by the end of 2050, hydrogen energy will meet 10 per cent of energy requirements, while the number of hydrogen fuel cell vehicles will rise to 30 million and hydrogen production will be equal to 60 million tonnes.

With a view to giving substance to these prospects, China has established the “National Ocean Technology Centre” in Shenzhen and developed – with the Italian “International World Group” – the “China-Europe cooperation project for energy generation and hydrogen production from sea waves and from other renewable energy sources”.

These are concrete projects in which – thanks to Italian creativity and Chinese rationality and pragmatism – we must continue to invest and work, not least to give the third industrial revolution a cleaner face than the coal-stained one of the second industrial revolution.

These projects appear to be in line with those envisaged both at European and Italian levels by the ‘Recovery and Resilience Plan’, which should guide us out of the economic doldrums of the pandemic. They deserve to be financed and supported as they can not only contribute to the recovery and revival of the economy, but also to the reconstruction of a cleaner and more liveable world (thus showing that good can always come out of evil).

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The ‘energy crisis’ and its global implications

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A particular news caught my attention this morning regarding energy crises. Before going into the depth of the news, I would like to introduce you to the concept of energy crisis and its global implications.  As introduced by Garrett Hardin in 1968; the tragedy of commons that the resources of world are limited, if the resources are used excessively soon there will come a time when they will become scarce. These resources can only be sufficient through cooperation of people among each other; there’s no other solution. The tragedy of commons is the best way to explain the concept the energy crises.

Now, the population world is growing at an exponential rate and with the growing population there is a need to provide a better lifestyle to the upcoming generations.  In a struggle for raising that standard of living, more and more resources of developed world are being utilized. The McKinsey Global Institute forecasted that by 2020 developing countries will demand 80 percent more energy which proved to be true as is evident in recurrent fuel shortages and price hike globally. A MIT study also forecasted that worldwide energy demand could triple by 2050.

Besides petrol, there is also a rise in demand for natural gas with only few reliable reserves all over the world. The natural gas reserves are mostly unreliable because they are usually found in deep oceans and mere accessibility can cost a lot of expense. Henceforth, the supply is limited, the price has fluctuated greatly and recent technological development has reduced dependence upon natural gas by providing alternatives such as fuel efficient or electric cars. Similarly, electricity supply systems are also not very reliable because there have been power blackouts in the United States, Europe and Russia. There have also been chronic shortages of electric power in India, China, and other developing countries.

If we specifically observe the Iraqi oil crises to understand the whole energy crises shebang, then according to today’s news in TRT World, in Iraq alone, $150bn of stolen oil cash smuggled out since 2003. Iraqi oil exports are even 30-40% below prewar levels. The acting president of Iraq is furious because insane amount of corruption is being carried out in Iraq where substantial quantity of oil is being smuggled. President Barham Saleh presented a legislation to parliament, where, under law any transaction over $500,000 would be scrutinized. This step, if materialized, can be very crucial in preservation of oil reserves in Iraq after the Saddam Hussein regime.

In United States, presidents have constantly been avoiding energy problems because they are very controversial. The recent Texas electricity outrage was a one that had been warned about. Before the Arab Oil Embargo Nixon in 1970’s was reluctant about energy and said ‘as long as the air conditioners are working normally, there is no energy crisis’ but after this incident Nixon began to change his tone and said on television that “energy is number one issue”. Then came Carter, who got a number of legislations passed on the issue of energy even when his own party was against it. In the 1970’s the prevalent thought for United States was that the world would run out of energy resources very soon so they started investing more in nuclear armament as an alternative. In 1990’s the combined cycle plants that used natural gas to create electricity were really efficient and economical that even gas at a high price could be competitive, also ethno-industry was crated at that time.

Then, the threat of climate change is also one of great relevance in the context of energy crises. The nonrenewable energy resources such as oil, water and coal must be used carefully and lack of which can be hazardous. It can cause drought, famine, disease, mass migration that will eventually lead to a conflict such as explained in the tragedy of commons theory. The now developed nations exploited natural resources to build its wealth. The resources such as wood, coal, oil and gas where on one hand are very economical, on the other hand they can be the originators of carbon emissions. Climate change also led to loss of biodiversity as well as environmental hazards.

Even though the developed world i.e. north provides a significant amount of assistance to the global North i.e developing countries, they cannot be a replacement for the shortage of resources. Also, they also face extreme price hike in the energy resources even though the developing nations are the ones owning the resources such Iraq for oil. Besides expensive resources, these developed nations also give rise to domestic and political tensions in the third world countries. Organizations like Al-Qaeda have openly declared their intent to attack oil facilities to hurt the interests of US and its close allies.

All in all, the pertaining threat of energy crisis has global implications. One person’s’gain is another person’s loss but this can be made inevitable if cooperation takes places. Sharing is caring and in this context sharing can prevent from future wars and hurricanes, floods and droughts and famines. The extent of seriousness of the problem must be taken into consideration not only be academicians but by policy makers as well.

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Stay in Oil or Race to Green Energy? Considerations for Portfolio Transformation

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Oil and gas (O&G) companies face a conundrum: capture the remaining value in hydrocarbons, or decide if, when and how much to invest in new, low-carbon energy business models.

The global O&G industry has the opportunity to redeploy as much as $838 billion, or about 20% of cumulative capital expenditures over the next 10 years, to further optimize their hydrocarbon business and/or pursue new growth areas including new energy ventures.

Of low carbon business models, market sentiment is currently strongest for renewable power with growing interest in green hydrogen and carbon capture as well.

Why this matters

In the wake of COVID-19 disruptions and an accelerating energy transition, O&G companies face a conundrum: stay and capture the remaining value in hydrocarbons or embrace new energy business models. Deloitte’s new “Portfolio transformation in oil, gas and chemicals” research series provides valuable insights into portfolio transformation and offers key considerations for companies making capital allocation decisions and exploring future business models.

Finding the right recipe for portfolio transformation

While companies understand the imperative to change, they are grappling with how much to invest and most vexing, in which green technologies? After all, while the high-growth phase of the oil market may have come to an end, oil demand is still projected to remain above 87 million barrels per day by 2030, even in accelerated energy transition scenarios.

How much to redeploy? $838 billion may be a starting point

To determine how much capital to redeploy, O&G companies could start with capital that is not earning the desired return. Deloitte analyzed 286 listed global companies and revealed that in a base case scenario, these companies could have the opportunity to optimize up to 6% of future O&G production which may not generate a 20% return at an average oil price of $55 per barrel. In other words, about $838 billion, or about 20% of future capital expenditures (CAPEX) across the global industry could be redeployed to optimize these projects and/or pursue promising green ventures. The findings suggest that the opportunity to redeploy will not decrease, but rather increase if oil prices stay above pre-pandemic levels. Among the company groups, supermajors, on average, have a potential to redeploy up to 36% of their future CAPEX.

Where to invest? Solar and wind most frequently mentioned

After performing text analytics and sentiment analysis on thousands of news articles to glean a directional sense of which low-carbon and new energy solutions are attracting the most media attention, the study found renewable power (solar and wind) had the highest share (47% among all green energy models). The tide also seems to be turning for green hydrogen (8% share of mentions).

“A confluence of factors, including climate, the pandemic, supply-demand imbalances, changing trends in end-markets, and growing appetite for sustainability investments, has given oil, gas and chemicals companies the need to progress faster around portfolio transformation. Many companies are eager to act but are seeking guidance on the speed and extent to which they expand into new, potentially high-growth areas, be it in new regions, markets, products or technologies. By taking a strategic, purpose-driven approach, companies can sustainably and profitably build a future-ready portfolio.”- Amy Chronis, vice chairman and U.S. oil, gas and chemicals leader, Deloitte LLP

Debunking myths: Turning hindsight into foresight to navigate portfolio transformation

While many O&G companies have transformed their portfolios over the years, not every change has been successful. The Deloitte analysis dispels conventional wisdom about strategic shifts and offers insights and important considerations about portfolio building in the O&G industry.

Myth 1: Agility and flexibility always deliver gains

  • Reality: Of the more than 286 upstream and integrated companies analyzed, only 16% of companies that made frequent changes to their portfolios delivered top-quartile financial performance.

Myth 2: Being big and integrated guarantees success

  • Reality: Only 28% of big (revenues above $10 billion) and integrated companies figured in the top-quartile.

Myth 3: Oil has lost its luster

  • Reality: Oil still delivers significant value for many. Two-thirds of oil-heavy portfolios deliver above-average performance.

Myth 4: Every “green” shift is profitable and scalable

  • Reality: Of portfolios that have become greener, 9% delivered top quartile financial performance, underscoring the importance of a strategic, purpose-driven approach to portfolio transformation.

Myth 5: Shale’s pain makes onshore conventional plays an obvious choice

  • Reality: Between 18-45% of non-shale portfolios analyzed delivered below-average performance.

Keys to building a future-ready O&G portfolio

There are four components of a forward-looking portfolio: growth engines, cash generators, profit maximizers, and divestment of value strains. Optimizing the energy transition is not just about selecting the correct technologies in which to invest; it also involves upgrading business models to incorporate new metrics, dynamic planning and AI-based analytics to become more agile. Companies should also consider strategic alliances to maximize their strengths and gain from others.

Chemicals and specialty materials (C&SM) face similar urgency for transformation

As the chemicals industry navigates its own portfolio transformations, focus is key. Deloitte’s analysis of more than 200 chemical companies over a 20-year period showed that focused companies — those that prioritize certain end-markets and product categories and derive at least 60% of the total revenue from that category — outperformed diversified chemical companies. In fact, focused chemical companies organically grew revenues at twice the rate, generated 70% higher return on invested capital (ROIC), and delivered 60% higher shareholder returns.

The top-performing chemical companies typically change their portfolio mix more frequently than others —usually changing their portfolio once every business cycle and remaining focused on their over-arching business strategy, be it low cost, differentiated products, or exceptional service.

Keys to building a future-ready C&SM portfolio

The study recommends C&SM companies make critical portfolio choices that create value. The ongoing disruption in end markets requires leaders to make conscious decisions about their competitive advantage and play in products and service categories where they can build and maintain that advantage. Moreover, given the growing emphasis on sustainability, chemical companies should consider investing in recycling technologies and incorporating renewable and recyclable materials in their product offerings.

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