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Dangerous attack on Europe’s energy security

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Analysis of the causes of the recent military confrontation on the Armenian-Azerbaijani border reveals an interesting panorama. No such sharp military confrontation or casualties were reported along the border of these two South Caucasus countries during the 30-year-long Nagorno-Karabakh conflict.

Until July 12 this year, the main place of military confrontation between the two countries was Nagorno-Karabakh and 7 adjacent regions, which are recognized by international law as the territory of Azerbaijan and occupied by the Armenian Armed Forces. The last such sharp military confrontation between two countries took place in April 2016 and is engraved in history as a four-day April war.Since then, there has been no such confrontation between Armenia and Azerbaijan with using of heavy artillery and air force.

This time the clash took place in the Tovuz region of Azerbaijan, 300 kilometers from Nagorno-Karabakh.According to the Azerbaijani Defense Ministry, starting from noon on July 12, Armenian Armed Forces violated the ceasefire in the Tovuz region of the Azerbaijani-Armenian border and fired on civilian and military positions using artillery. As a result, 12 Azerbaijani servicemen and 1 civilian were killed. The attack was prevented only after retaliatory strikes, but the ceasefire along the border has not yet been fully restored. The co-chairs of the OSCE Minsk Group (USA, Russia, France) which mediate in the peaceful settlement of the Nagorno-Karabakh conflict, the European Union, as well as the international community call for a ceasefire. However, the possibility of resuming the ceasefire soon is not yet on the horizon.

In this case, one of the main points that raises the question is why the fighting took place not in the direction of Nagorno-Karabakh, but on the Armenian-Azerbaijani border. The point is that the region where is situated the Tovuz region of Azerbaijan, attacked by the Armenian Armed Forces, ihas a strategic importance. The Baku-Tbilisi-Ceyhan pipeline, which carries crude oil to Europe, the South Caucasus Pipeline, which is the beginning point of the Southern Gas Corridor, including the Trans-Adriatic Pipeline (TAP) to Italy, and the Baku-Tbilisi-Kars railway, which laid the foundation for the revitalization of the Silk Road pass  from Tovuz region also. The military provocations in Tovuz not only destabilize the region, but also hinder the operation of these important projects, which provide access to alternative energy sources for Europe.

Elshad Nasirov, Vice President for Investments and Marketing of the State Oil Company of Azerbaijan (SOCAR), also voices interesting views on this issue: “In my opinion, it is not accidental that Armenia launched a military operation against Azerbaijan three months before the start of Azerbaijani gas supplies to Europe. Military operations are realised on the Armenian-Azerbaijani border, not in Nagorno-Karabakh, which is recognized by all international organizations and countries as the territory of Azerbaijan. All the infrastructure that brings Azerbaijan’s energy resources to Western countries and the world market is located in this region. Baku-Tbilisi-Ceyhan, Southern Gas Corridor, Baku-Supsa pipeline, Baku-Tbilisi-Kars railway, Baku-Tbilisi highway pass through the direct view and proximity of the place where the Armenian military operations began. I invite our colleagues from Washington, Europe and elsewhere to think about how sensitive the Ganja Corridor and the Trans-Caspian region are and how to ensure the military and physical security of Europe’s energy security corridor”.

At present, European countries are among the main consumers of Azerbaijani oil. Italy is Azerbaijan’s main trading partner in the sale of this oil on world markets. In the autumn of this year, Europe will also start consuming Azerbaijani gas. For this purpose, a 3,500-kilometer-long Southern Gas Corridor pipeline is being built and is nearing completion. Its last ring, the Trans-Adriatic Pipeline to the Italian shores of the Adriatic Sea, is 97 percent completed. TAP is the European section of the Southern Gas Corridor, enhancing Europe’s energy security and contributing to decarbonisation and the diversification of gas supplies.

In October 2020, the pipeline will start transporting Azerbaijani gas to Europe. Thus, Europe will start importing natural gas from a completely new source. The attack on Azerbaijan’s Tovuz region shortly before this important event is also considered an attack on Europe’s energy security. Azerbaijan believes that one of the main goals of Armenia’s latest provocations is to destabilize the region and hinder the operating  of these important projects, which will allow Europe to access alternative energy sources and new markets.

There is another dangerous reason for Armenia’s bombing of the border areas densely populated by the Azerbaijani population. The another aim of the provocation and tension in the direction of Tovuz region of the state border between the two countries is to involve third parties to the conflict.We are talking about Russia and member countries of the Collective Security Treaty Organization (CSTO). Azerbaijan’s Ambassador to Russia Polad Bulbuloglu says in this regard: “There is no doubt, this was done to involve the CSTO member countries and, first of all, Russia into the conflict. Because it’s clear that Azerbaijan has bilateral partnership relations, including economic ones with all members of the CSTO. The local task is to raise the CSTO, primarily Russia, the global task is to create another hotbed of tension along the perimeter of Russia, which would create certain concerns”.

Assistant to Azerbaijan’s President, Head of Foreign Policy Affairs Department of the Presidential Administration Hikmat Hajiyev agrees üith this opinion. He says Armenia seeks to involve military-political organizations, member of which it is, into the Karabakh conflict, through military provocations, and avoid responsibility for occupation and aggression against Azerbaijan.

However, Armenia’s efforts in this direction did not yield results.Even though Head Secretary of the organization initially said it would hold an emergency meeting on the issue, but later postponed it indefinitely period.However, Armenia still does not give up its attempts to involve Russia and the organization in the conflict. In this case, Turkey the member of NATO  openly supports Azerbaijan. In this context Armenia is trying to confront NATO and Russia in the Caucasus by exaggerating the Turkish factor. But this time, Russia is cautious.

Nevertheless, it is important to resolve the Nagorno-Karabakh conflict as soon as possible within the framework of international law in order to prevent the dangerous development of events. It should be reminded that, four resolutions of the UN Security Council demanding unconditional withdrawal of the Armenian troops from the occupied territories.Armenia in 1990 years aggressively occupied the Nagorno-Karabakh region and the adjacent seven districts of Azerbaijan. The conflict between the two South Caucasus countries began in 1988 when Armenia made territorial claims against Azerbaijan and as a result of the ensuing war, Armenian armed forces occupied 20 percent of Azerbaijan. Over a million Azerbaijanis living in these territories were subjected to ethnic cleansing and were expelled from their homes.The 1994 ceasefire agreement was followed by peace negotiations. But Aprel war in 2016 and border clash in July of this year shows the conflict may ignite in any time on military ground.

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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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