China on the Verge of Energy Crisis
The energy crisis, once thought to be out of reach, has recently reappeared gradually around the world, and China too is beginning to face the challenge as well.
Under the pressure of global climate change, the world’s energy sector has begun a large-scale energy transition. As conventional energy sources are becoming “obsolete” and “dirty”, financial institutions are reducing their financing to related companies. With the advent of such changes, oil companies are developing new energy sources. This in turn, has led to a pessimistic outlook for conventional energy such as oil and coal; the fall in oil prices should be a normal manifestation in line with this trend.
However, under a series of factors, international oil prices have instead seen a sustained rise, almost continuously since last December. WTI crude, for example, rose by as much as 33% in 2 months from USD 67/barrel on December 2, 2021 to USD 90/barrel on February 9, 2022; during the same period, Brent crude rose by 29%.
Figure: U.S. WTI crude rising for nearly two months
Source: Sina Finance.
Since 2021, international natural gas prices have risen to varying degrees, among which European natural gas prices have seen the most significantly rise. As Europe’s energy crisis deepens, the imbalance between supply and demand in the market has caused prices to soar. European wholesale gas prices in February 2022 are 5-6 times higher than in early 2021; electricity prices have soared as a result, with average price in major European countries exceeding EUR 300 per megawatt hour (MWh), compared with less than EUR 50 per megawatt hour in 2019. Gas stocks across Europe are now at just 68% of full capacity, well below the 10-year average. U.S. natural gas prices are also on the rise, with households paying an average of USD 746 to heat their homes in the winter, up about 30% from last year, and those in regions such as the Midwest are likely seeing increases of about 49% year-on-year, the highest on record since the winter of 2008. In parts of Asia, natural gas prices even once jumped fivefold.
It is important to emphasize that, in addition to the impact of COVID-19 and increased energy demand in the winter, geopolitical factors have played a great role in this round of global oil and gas price increases. In particular, the confrontation between Russia and the United States and Europe over the Ukraine issue has a great impact on the global energy market. Russia has drawn a line in the sand that Ukraine’s membership of NATO would mean war. The U.S. and NATO, on the other hand, insist that it is not up to Russia to decide whether Ukraine joins NATO. While ANBOUND has long ruled out a war between Russia and the United States and Europe over Ukraine, it is a reality for the energy market that tensions in geopolitics are exacerbating risks in the energy market. Josep Borrell, the European Union’s high representative for foreign affairs and security policy, has warned that Europe is facing its most serious security threat since the Cold War.
About 40% of Europe’s gas imports come from Russia, while Gazprom, Russia’s state-owned supplier, sells 70% of its natural gas to Western Europe. The import dependency ratio of Germany, Italy, and nuclear-rich France on Russian gas are 49% 46%, and 24%, respectively, according to data from the European Union Agency for the Cooperation of Energy Regulators (ACER). Europe’s natural gas stocks were 36% of storage capacity as of February 6. The gas shortage comes at a time of renewed tensions between Russia and Ukraine, raising the issue of energy security. The European Union has proposed new rules aimed at improving gas reserves, allowing member states to jointly purchase gas to form strategic reserves. The European Union is also increasingly interested in long-term supply deals, with officials negotiating with Azerbaijan, Qatar, and the United States to secure additional supplies. Russia’s Gazprom has also diversified its customer base with LNG terminals and pipelines to China and Turkey, and plans to undertake more projects. Europe and Russia are working to reduce their interdependence, which could benefit gas exporters in the United States and elsewhere.
The Russia-Ukraine crisis has strengthened the EU’s resolve to enhance energy security. However, changes will only happen slowly, given the time and huge investments needed to switch fuel sources, or to build new pipelines and LNG terminals. This means that a reduction in the EU’s interdependence with Russia on energy supply and demand is unlikely to be achieved in the near future. Shifting geopolitical factors will continue to hit energy markets, particularly Russia’s gas deal with the European Union. Historically, Russia has used its energy exports as a tool to exert political pressure on other countries. Russia cut off gas supplies to Ukraine over a price dispute in 2006 and again after the annexation of Crimea in 2014. In 2009, Russia again cut off supplies to Europe through Ukraine. Energy experts warned that Russia will have to pay a price if President Vladimir Putin “weaponizes” gas supplies to Europe amid rising tensions between Russia and Ukraine.
Researchers at ANBOUND would like to point out that the deterioration of global energy security caused by geopolitical factors will not only affect Russia and the EU, but also affect China due to changes in the global energy supply and demand pattern.
China is the world’s major energy importer, and its crude oil and LNG imports are also the world’s largest. According to energy production and import data released by the National Bureau of Statistics, in 2021, China imported 320 million tons of coal, 512.98 million tons of crude oil, and 121.36 million tons of natural gas, a 19.9% year-on-year jump. In terms of import dependence, China’s import dependency ratio on oil, natural gas, and coal in 2021 was 72.1% (down 1.5 percentage points year-on-year), 45.5% (up 3.3 percentage points year-on-year), and 7.3% (up 0.05 percentage points year-on-year), respectively.
China’s dependence on the international market for oil and gas is so high that it greatly exceeds the energy dependence of EU countries on Russia. China’s dependence on external energy supplies shows the energy supply chain between China and the international market and the risk channel between China and the world in terms of energy security. Once a relatively extreme geopolitical conflict occurs in the current fragile international energy market, the impact of the energy market will ripple through China, regardless of whether China is involved in the conflict.
As the “world’s factory”, China is certainly aware of the importance of energy and mineral resources to a country. China’s 14th Five-Year Plan places great emphasis on the three major areas of economic security facing China, i.e., food security, energy security, and financial security. Among these three areas of economic security, food security and financial security are mainly domestic matters, but the key to energy security lies not in the domestic market but in the international market. To this end, a considerable amount of international resources will be invested in China’s future development to ensure energy security. This also means that energy security will be a long-term “sensitive point” and risk factor for China, and one that can be easily exploited for geopolitical “leverage”.
At present, China is still trying to build a conventional energy security system. Not long ago, during Putin’s visit to China on February 4, China and Russia reached an agreement on energy purchases and sales. Enterprises of the two countries signed an agreement on the purchase and sale of natural gas, making it the second long-term gas supply contract between the two. After setting up the new pipeline, it is expected that Gazprom’s total gas supply to China will reach 48 billion cubic meters per year.
Seeing Japan – Indonesia Collaboration in Energy Transition Cooperation
Holding the G7 presidency, Japan is increasingly active in establishing relations with several countries. One of them is Indonesia. The relations that have existed so far between Indonesia and Japan are widely visible on the surface. One of them is in the energy transition sector. Indonesia is in need of a large investment to achieve net zero emissions in 2060. An investment of more than 500 million US dollars is needed to make this happen. This is indicated by the great effort to reduce energy that uses fossil fuels (coal, oil and gas) in people’s lives. Including efforts from Japan to cooperate with Indonesia or vice versa in achieving net zero emissions.
Abundant Natural Resources: A Privilege for Indonesia
The abundance of natural resources owned by Indonesia is an important point for the continuation of cooperation between Japan and Indonesia. Natural resources such as hydrogen, geothermal are important values to be further developed into renewable energy. This is a breath of fresh air for Indonesia, which is trying to achieve net zero emissions by 2060.
Replacing fossil fuels such as coal, oil and gas to renewable energy requires extra effort, Indonesia which is rich in energy resources requires a lot of money in terms of exploration of natural resources. renewable energy resources, such as hydrogen, geothermal. renewable in Indonesia. One of them is through a funding scheme through the Asian Zero Emission Community (AZEC). Through this funding, Japan, which is known to be very generous in helping developing countries in terms of energy, is expected to be able to bring change to the renewable energy transition in a country rich in energy resources, Indonesia. This transition certainly requires a short and gradual process.
State Electricity Company of Indonesia abbreviated as PLN, states that dependence on new coal will decrease in 2030. This is due to the presence of power plants from renewable energies such as geothermal, solar, hydrogen and nuclear and wind (Kompas, 2023).
Japan’s Investment to Indonesia
Indonesia, with all its abundance of energy resources, is considered capable of developing an energy transition. The development of electricity from geothermal, water and biomass are the main sector. This was conveyed by the Government of Japan through Deputy for International Affairs, Ministry of Economy and Industrial Development of Japan Izuru Kobayashi. He stated that his party was ready to assist Indonesia in achieving net zero emissions in 2060 with an environmentally friendly funding and technology assistance scheme.
The above was also supported by another Japanese party, namely from Sumitomo Mitsui Banking Corporation (SMBC). Quoting from IJ Global, SMBC has financial assistance to Asia Pacific countries for clean energy projects through Mitsubishi UFJ Financial Group of US$1.5 billion, Sumitomo Mitsui Financial Group of US$1.2 billion, and Mizuho Financial Group of US$1.2 billion. 1 billion US dollars. In Indonesia alone, as of September 2022, SMBC had invested US$221 million.
Various forms of support by Japan as donors and companions for Indonesia to develop renewable energy should be appreciated. According to the author opinion, this is a challenge for the Government of Indonesia and all of stakeholders inside, to create an investment environment that is safe, good and useful for Indonesia’s future. The use of fossil fuels such as coal for power generation needs to be slowly substituted using renewable energy. The Jokowi administration’s policy of subsidizing electric vehicles for the public can be an entry point for the continuation of Indonesia-Japan collaboration in realizing the energy transition.
The Maneuvering Of Gas Commodities As Securitization Of Russia’s Geopolitical Position
Authors: Luky Yusgiantoro and Tri Bagus Prabowo
In 2012, the Yakutia-Khabarovsk-Vladivostok gas pipeline project was redeveloped under The Power of Siberia (News Ykt, 2012). Putin legalized Gazprom (contractors: Gazprom Transgaz Tomsk). The idea named “Power of Siberia” represents the power of gas pipelines to shape and influence Russia’s geopolitical and geoeconomic situation. A new identity will be launched, conveying the Yakutia-Khabarovsk-Vladivostok gas pipeline and gaining international prominence. The Power of Siberia project is an integrated form of GTS (Gas Transmission System) that will bring the Irkutsk gas region in the fertile eastern part of Russia to the Far East and China. The pipeline location is located in the “Far East,” incredibly close to the border with China, and generally in the Asia-Pacific region. Initially, this gas pipeline was built to facilitate gas trade with China and reduce China’s dependence on coal (Pipeline Journal, 2022). What is the value of this project for both countries to become global concerns?
Furthermore, they have the ability or range to carry gas communications for approximately 4000 km. Due to its geographical proximity and shared economic interests, China is Russia’s most progressive partner in terms of a multifaceted regional and international strategy. Russia and China are known as close partners. The aftermath of Russia’s political alliance was to regain global power, status, and influence lost after the collapse of the Union of Soviet Socialist Republics in 1991, which was the driving force behind the end of the Cold War (Oualaalou, 2021 ). Russia has articulated a vision of rebuilding its global reputation using energy, military might, intelligence, and diplomacy. Russia wants to play a crucial role in the global multipolar system because the West rejects Russia’s vision for a new geopolitical order. They saw many important events related to Russia’s moves in the international order, including its response to the actions of the North Atlantic Treaty Organization (NATO) to try to dominate the nations of the world. The former Soviet Union (East), the failures in the Middle East, the annexation of Crimea, and one of Moscow’s recent invasions of Ukraine mark the military as a turning point in Russian geopolitical politics, especially during the Putin era. Russia has three strategic initiative points, including the ability to deploy and interconnect the means (intelligence, diplomacy, military, cyber, and energy) to gain influence and extend Russia’s global footprint. There is.
Moreover, the Fallacies and Western Ties strategy contradicts America First foreign policy tenets (unipolar) and impulsive decisions as a security threat. Russia wants to maintain its lack of regional interests in certain Baltic states (those still under Russian control) and the Balkans (Cooley, 2017). The Balkans (Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, Romania, Slovenia, and Serbia) have been the cornerstones of great power rivalry for centuries. NATO (North Atlantic Treaty Organization) and the EU (European Union) used the momentum of Yugoslavia’s dissolution in the 1990s to integrate the Balkans as geopolitical hotspots on the Western Front (European Policy). War analysts say the ongoing Ukraine conflict is a way for Russia to raise its stakes in the Balkans and reassert its regional influence (McBride, 2022).
In 2020, natural gas will still be the world’s third-largest primary energy requirement for the global community. Even though the COVID-19 pandemic began in 2019, demand for natural gas increased by 5.3% to 4 trillion cubic meters (TCM) in 2021 (BP, 2022). In 2021, Russia’s total natural gas production will be 701.7 billion cubic meters, the second largest globally, contributing to the strong demand in the global energy market. Russia is essential in the natural gas market (Sonnichsen, 2022). The climate crisis is the most obvious obstacle in the global gas market model. It originates from burning carbon with materials derived from fossil fuels such as oil, natural gas, and coal. However, natural gas is acceptable during the energy transition as it burns the least carbon dioxide (CO2) and pollutants of these three substances (EIA, 2022). It is easier than supplying a gas infrastructure that does not provide infrastructure. Operationally, it is optimal. Talks about climate protection, the climate crisis, and the energy transition are being shaped by Western countries as a way of highlighting Europe’s dependence on gas from Russia, which is geographically accessible and still has gas in other gas reserves. The decision to stop sourcing natural gas from Russia continues to cause European controversy. The pipeline network actively built between Russia and Europe is an essential aspect of why this relationship is used as a tool for Russia to apply pressure—on territorial Europe. Europe uses a climate scenario, and Russia uses a gas-dependent scenario. Efficiency and effectiveness will not be achieved if Europe suddenly has to look for other reserves or switch entirely to this energy mix. Then, with Russia’s eloquence in exploiting the situation and the status quo, natural gas pipelines were used as a form of Russian energy diplomacy to dominate its (European) neighbors. Recognizing that the Western natural gas market is no longer preconditioned, moving target consumers to the Asia-Pacific region is one of the most effective energy plans for Russia’s fossil fuel expansion.
Siberia’s first electricity will cost 770 billion rubles, and the investment in gas production will cost 430 billion rubles. The 1,400 mm natural gas pipeline capacity will increase to 61 billion cubic meters (2.2 trillion cubic feet) of natural gas annually. The pipeline lets the world see natural gas as one of the fossil fuels and does not pollute the air with the carbon and other substances of the climate crisis. , through the capital Beijing and down to Shanghai. According to state media, the intermediate phase will go online in December 2020, with the final southern section expected to start delivering gas in 2025 (Cheng, 2022). Through this agreement, Russia aims to extend its power beyond Mongolia into Siberia 2 in 2030 (IEA, 2022). Conditions for Europe to get 40% of natural gas from Russian pipelines. Germany, in particular, sources about half of its natural gas from Russia (Baldwin, 2022). Despite international media reports of embargoes and sanctions, the crisis has hit Europe hard. Europe must adapt its economic policies to politically justified policies and coordinate them with each other. However, this is a geopolitical struggle, and we must ensure that the country retains its absolute superiority. Russia chooses to invest in and plan for natural gas markets in regions that require or depend on natural gas in the energy sector, i.e., Asia-Pacific via China. China, influencing the Belt and Road Initiative (BRI) plan, is reshaping the geoeconomic position of Russia’s Siberia 1 and Siberia 2 power markets (Lukin, 2021). “Geopolitics is all about leverage” is one of Thomas Friedman’s influential geopolitical maxims. If a country cannot expand its influence, it remains a loser. Nevertheless, Russia is far from this analogy, as mentioned earlier. Russia continues to secure its geopolitical position. It is the embodiment of growing confidence in the reliability of natural gas. Russia still wants to become a major player in natural gas.
Remapping the EU’s Energy Partners to Ensure Energy Security and Diversification
Energy security has been a buzz word in Brussels for a few decades but since Russia’s invasion of Ukraine, followed by sanctions, Russian gas cut-off and physical destruction of North Stream pipelines, forecasts on strained EU energy production due to drought, the stakes have gotten much higher. This was confirmed on March 10th by a joint statement by the US President Joe Biden and European Commission President Ursula von der Leyen, reiterating both parties’ determination to “build clean energy economies and industrial bases”, including clean hydrogen and continue to work together “to advance energy security and sustainability in Europe by diversifying sources, lowering energy consumption, and reducing Europe’s dependence on fossil fuels”.
Last week, the EU energy chief Kadri Simson encouraged all Member States and all companies to “stop buying Russian LNG, and not to sign any new gas contracts with Russia. The EU has pledged to quit Russian fossil fuels by 2027 and replaced around two-thirds of Russian gas last year.
In this context, the Southern Gas Corridor (SGC), delivering Azerbaijani gas through (Trans-Anatolian Pipeline) TANAP and Trans-Adriatic Pipeline (TAP) to the EU, plays a key role in current diversification efforts. The EU increased gas imports via pipelines from Azerbaijan from 8.1 bcm to 11.4 bcm last year. Only two years after its completion, the expansion of the Corridor seems to be likely as the EU and Azerbaijan stroke a deal in July 2021 to double the volume of gas delivery to 20 bcm by 2027 in addition to plans to tap into Azerbaijan’s renewables potential, such as offshore wind and green hydrogen. While encouraging Azerbaijan’s accession to the Global Methane Pledge, the deal aims at collecting natural gas that would otherwise be vented, flared, or released into the atmosphere.
With the opening of the interconnector Greece-Bulgaria (IGB), at least 11.6 bcm of gas is expected to be delivered from Azerbaijan to the EU this year. The IGB has been dubbed as a game-changer for the EU’s energy security, especially as it enabled supplies to Bulgaria and Romania. A Memorandum of Understanding on gas supplies between Azerbaijan and Hungary was also signed this year, which shows that more interconnectors will be needed in the EU if TANAP would be expanded from 16 to 32 bcm and TAP from 10 to 20 bcm.
Moreover, investments will be needed to increase gas production in existing and new gas fields (Shah Deniz, Azeri Chiraq Guneshli, Absheron, Shafaq-Asiman, Umid-Babek, etc.), especially considering growing energy demand in Azerbaijan and its neighbours. Since the Russia-Ukraine war, 10 European countries turned to Azerbaijan to increase existing supplies or to secure new supplies. To meet such growing demands, Azerbaijan is poised to increase cooperation with neighbouring states, such as Turkmenistan, which is home to 50 trillion cubic metres of gas reserves – the world’s 4th largest reserves.
Following the Azerbaijani-Turkmen decision to jointly develop the formerly disputed Dostluq gas field, a trilateral swap deal between Iran, Azerbaijan, and Turkmenistan, and the 2018 Convention on the status of the Caspian Sea by all the littoral states; Azerbaijan, Turkmenistan, and Turkey stated that they were looking “to form a coordinated and multi-option system for delivering energy resources to global markets” on December 14th last year.
These developments could be harbingers of a new Trans-Caspian Gas Pipeline (TCGP), a 180-mile under-sea pipeline that could be integrated into the SGC. Labelled as an EU Project of Common Interest, which could also be eligible for funding under the 2019 US European Energy Security and Diversification Act, this strategic under-sea pipeline project could bring an end to the EU’s energy crisis by securing a cheap source of natural gas, whose price is independent of LNG prices while counterbalancing Chinese, Russian and Iranian influence in Central Asia and beyond. On the other hand, Azerbaijan began the transit of oil from Kazakhstan this year in addition to Turkmenistan, which highlights the potential to use the Middle Corridor for hydrocarbons.
During the 9th Southern Gas Corridor Advisory Council Ministerial Meeting and 1st Green Energy Advisory Council Ministerial Meeting in Baku in February, EU Energy Commissioner Kadri Simson stated “Azerbaijan can potentially become the exporter of renewables and hydrogen to the EU”. At the end of last year Azerbaijan, Georgia, Romania, and Hungary agreed to establish a green corridor to supply the EU with around four gigawatts of electricity generated by windfarms in Azerbaijan with the support of the European Commission.
Over the last several months, Azerbaijan signed documents that will provide investments to create 22 gigawatts of renewable sources of energy, both onshore and offshore. In April 2021, the World Bank started funding the offshore wind development in Azerbaijan, which has a potential of 157 GW. In addition to the Caspian Sea, which ranks second in world for its wind energy potential, Azerbaijan has an estimated 27GW in wind and solar power onshore.The current construction of wind and solar plants in Alat (230 MW), Khizi and Absheron (240 MW) and Jabrayil (240 MW) as well as new investment plans, including in Nakhchivan Autonomous Republic, are expected to further boost renewables production in the Caspian state all by living up to its vast green potential. While the country, with a population of 10 million, accounts for only 0.15% of total global greenhouse gas emissions, it defines green growth as a key priority for 2030. The EU supports the implementation of Baku’s Paris Agreement commitments through the EU4Climate initiative.
The Russia-Ukraine war may create a window opportunity for the EU to engage in concrete actions rather than high-flying buzzwords, pushing the bloc to do more strategic and visionary planning regarding future projects linked to its energy security, such as TCGP, and finally diversify away from Russian energy sources for good. Azerbaijan has proved to be a stable partner in these challenging times, which manifested the vulnerability of certain EU states against Russian economic and political pressure due to Gazprom’s immense infiltration of their gas markets for the past several decades. Now it’s the time to play fair game by a new playbook and to remap the European energy partners while investing in a stable, predictable, affordable, and sustainable energy future for the EU.
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