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Advent of Global Energy Resetting

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The escalation of the Russia-Ukraine crisis, in addition to causing turmoil in the global energy market, is causing deep changes in it as well. According to ANBOUND analysts, the global energy market is undergoing a substantial reset as a result of such developments in the energy sector in some nations.

The very word “reset” here implies there will be major adjustments in different areas including global energy production, trading, transportation, consumption, investment, and financial markets, as a direct result of the Russia-Ukraine geopolitical crisis. This system adjustment has not only altered the past development pattern of the global energy field but has also resulted in the reconstruction of the global energy industry and energy market.

Historically, it is quite common for energy markets to be hit by geopolitical events. The two energy crises in the 1970s – the NATO attack on Yugoslavia in 1999 and the 9/11 terrorist attack in 2001, and the advent of the Russia-Ukraine conflict in February 2022, to varying degrees, all had a detrimental influence on the international energy market.

However, not every shock leads to a major transformation in the global energy markets. What makes the crisis remarkable this time is that Russia is one of the world’s largest energy producers and exporters. As a result of the crisis, which has triggered conflicts between Russia and the West, the massive geopolitical risk is driving a worldwide shift in the energy business.

Russia is currently one of the world’s main energy suppliers. The country’s oil and natural gas production ranks second in the world. Russia is also the second-largest oil exporter and the largest natural gas exporter in the world. Its oil and natural gas exports account for about 25% of global export trade. Russia’s oil exports are second only to Saudi Arabia, exporting about four million to five million barrels of crude oil a day, and two million to three million barrels of refined products per day. In 2021, Russia’s crude oil production was about 520 million tons, ranking third in the world, after the United States and Saudi Arabia. The natural gas production was 761 billion cubic meters, ranking second in the world, which accounted for about 18% of the world’s total natural gas production. In 2021, Russia exported about 230 million tons of oil, second only to Saudi Arabia. The natural gas export was about 200 billion cubic meters, ranking first in the world. Europe is the main destination of Russia’s energy exports. Russia’s oil and natural gas exports to Europe account for 50% and 78% of the country’s total exports, respectively.

The Russia-Ukraine crisis has severely ruined the rapport between Russia and Europe. The West’s multifaceted sanctions against Russia, combined with Russia’s counter-sanctions, result in a long-term regress between Russia and the West. At present, the sanctions imposed by the United States and Europe against Russia, has yet to involve oil and natural gas which are major interests by the United States and Europe, at least for now. If Europe adds to the oil sanctions, they would be critical to Russia’s economy. This is bound to cause a major transformation in the world energy market. Using European natural gas as an example, BP data shows that in 2020, European natural gas consumption was 541.1 billion cubic meters (an average of 547.8 billion cubic meters over the previous five years), and imports from Russia were 184.9 billion cubic meters (accounting for 34.2% of European consumption), with 167.7 billion cubic meters of pipeline natural gas. If Russia cuts off completely the supply of natural gas to Europe, it implies that Europe would need to locate 184.9 billion cubic meters of alternative natural gas.

Europe and other nations have been wary about Russia’s energy exports, as they are well aware that any changes would have an impact on the demand and supply of global energy. On March 3, The International Energy Agency (IEA) said, “Nobody is under any illusions anymore. Russia’s use of its natural gas resources as an economic and political weapon show Europe needs to act quickly to be ready to face considerable uncertainty over Russian gas supplies next winter”. The IEA estimates that by turning to other gas suppliers and alternative energy sources, the European Union could reduce its dependency on Russian gas by more than a third within a year. There is still space for improvement in the supply of pipeline gas in Azerbaijan and North Africa. The United States is the world’s number one supplier of liquefied natural gas (LNG). Europe competes with Asian countries for LNG contracts by Qatar and Australia. Europe must pay a higher cost than pipeline gas to increase LNG imports. Countries with insufficient receiving terminals, such as Germany, have gas supply and storage capacity difficulties.

While a global ban on Russian crude exports has yet to be enacted, refiners from European and American industries have begun to shun Russian oil, and banks have refused to finance the shipment of Russian commodities. This has set off a chain reaction in the global crude oil trading system: On March 1, Russian Urals oil was at a discount of more than $18 to Brent crude. The market estimates that as of March 2, the affected Russian crude oil exports have reached three million barrels per day. The non-Russian crude oil has also been drawn into the turmoil. International buyers are shunning crude oil transported by the Caspian Pipeline (CPC) because the crude oil transported by the pipeline could have mixed with Russian crude oil and the terminal of the Caspian Sea pipeline is a Russian port on the Black Sea, according to Reuters. The Caspian pipeline transports more than one million barrels of crude oil per day from Kazakhstan, equivalent to more than one percent of the world’s supply. Against the background, the market expects that Russia might be forced to partially cut down production.

The energy resetting would also affect the traditional energy and nuclear energy policies in some countries. With the escalation of the Russia-Ukraine crisis, international oil and gas and coal prices have soared, and nuclear power is gaining attention from some countries. On February 11 this year, French President Emmanuel Macron announced a large-scale revival of the nuclear power program. France will build at least six new nuclear reactors and study the possibility of building eight more reactors. On February 16, the construction of nuclear power plants in Kazakhstan is likely the most promising solution in the event of an expected power shortage, Kazakhstan’s Ministry of Energy said. The Philippines has also determined to embrace nuclear power. Philippine President Duterte mentioned in a recent executive order to include nuclear power in the country’s energy mix as local authorities get ready for the phasing out of coal-fired power plants after earlier efforts were unsuccessful due to safety concerns. Next, on March 3, the Finnish utility FORTUM applied to the government to extend the life of the LOVIISA nuclear power plant, which has been in use for more than 40 years, to 2050. Previously, the plant was supposed to close in 2030. On March 2, German Economy Minister Robert Habeck revealed that Germany is weighing whether to extend the life of remaining nuclear power plants to safeguard the country’s energy supply amid uncertainty over Russian gas supplies. Germany had plans to close its nuclear power plants by the end of 2022. India, South Africa, and other countries also plan to significantly expand nuclear power.

Coal also becomes a part of this transformation. Germany has loosened its coal policy under pressure. The German Institute for Economic Research recently recommended in a report that coal power plants that had been mothballed for reasons of climate protection should be brought back into service. According to Germany’s plan, all coal-fired power plants will be closed by 2038, and the use of natural gas will be abandoned by 2050. Under energy crises brought by geopolitical challenges, these green and environmentally friendly plans would be greatly affected. Other European countries might also reuse or increase the use of coal.

These changes brought by the energy crisis, which has been exacerbated by the geopolitical crisis, are driving many countries to reconsider the application of nuclear power and coal power, along with other green energy and energy-saving applications. A massive energy transformation process has taken place all across the planet. Due to the energy resetting, the changes might not only occur in the energy market, but also in the laws, industrial plans, fund investments, government energy policies, and financial insurance.

Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy

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The Potential of Palestinian Gas and the Role of Regional Powers: From Promise to Action

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Recent progress on the Gaza marine gas field’s development is positive news and highlights the potential for mutually beneficial agreements in the East Mediterranean. The preliminary approval by Israel of the Palestinian field’s development and exploitation is outcome of mediation efforts exerted by Egypt and Jordan that aimed at de-escalation of tensions and building bridges between Palestinians and Israelis. The benefits of the Palestinian field’s development are multifold and range from advancing energy security in Gaza and providing a substantial windfall for the Palestinian economy to improving Israel’s regional standing and attracting investment for the execution of infrastructure projects within the region.

Strained political relations between Israelis and Palestinians, sporadic Israeli support, concerns that revenues would be used to fund terrorism, and low gas prices have been prime reasons that impeded development of the 23-year-old Gaza marine gas field project. The war on Ukraine and the subsequent global energy crisis, as well as the Israel-Lebanon maritime delimitation agreement brought the Gaza marine gas field project to the forefront and accelerated mediation efforts that led to the preliminary approval by Israel for its development. In case a final agreement is reached, the field that contains 1 trillion cubic feet of gas is expected to generate revenues worth approximately $2.5 billion over its 15-year life span.

The Spirit of the Preliminary Deal

According to the preliminary deal, Egypt’s Natural Gas Holding Company (EGAS) will develop the field and related infrastructure in pursuance with the Memorandum of Understanding (MoU) signed in 2021 between the Egyptian state-owned company and the field’s partners namely, the Palestine Investment Fund (PIF) and Consolidated Constructors Company (CCC). The MoU foresees the transportation of Palestinian gas through a 40-mile pipeline to Egyptian LNG facilities for liquefaction and consumption by the Palestinians, Egypt, and third markets. Development of the field is expected to proceed in three phases:  Phase 1 involves extraction of gas from Gaza marine-1, Phase 2 involves construction of the pipeline, and Phase 3 involves the development of Gaza marine-2, a second well closer to Egypt.

The Palestinian Authority will receive gas revenues and the final agreement is expected to be strictly limited in scope prioritizing the exploitation of Gazan gas and leaving outside the issue of recognition between Israel and Hamas. The latter’s tacit approval of the Gaza marine gas field’s development is allegedly outcome of extensive discussions among security officials that favored an Egyptian offer of an economic incentives’ package to Hamas in exchange for a long-term truce (hudna) with Israel. The conversion of the diesel-based Gaza Power Plant to operate on gas produced by the Gaza marine field holds a prime position in the economic incentives’ package. Improvement of living conditions in Gaza for its 2.3 million population is expected to politically benefit Hamas as currently Palestinians experience regular power shortages. In practical terms, Palestinians in Gaza receive an average of 10 hours of electricity per day according to data released by the UN Office for the Coordination of Humanitarian Affairs.

Overall, development of the Gaza marine gas field would provide Palestinians a domestic low-cost energy source, generate revenues for the Palestinian Authority and help Palestinians transition from diesel toward less carbon-intense fuels.

Palestinian Popular Perceptions

Public perceptions in Gaza have been affected by press reports on American mediation efforts for a normalization agreement between Saudi Arabia and Israel on the precondition that certain concessions are given to the Palestinians. Specifically, majority of the Palestinian public in Gaza and the West Bank maintains that the approval by the most right-wing Israeli government to date for the Gaza marine gas field’s development has been part and parcel of the discussions underway for the oncoming Saudi-Israeli normalization.

An opinion poll released on September 13, 2023, by the Palestinian Center for Policy and Survey Research (PCPSR) reflects this trend. 29 percent in Gaza believes that an agreement between Saudi Arabia and Israel to normalize relations could improve the chances for reaching Palestinian-Israeli peace. Related to this perception and taking into consideration that 2023 marks the 30th anniversary of the Oslo Accords, Gazans view more positively than the West Bankers the Oslo Agreement. As cited in the PCPSR poll, 40 percent of Gazans oppose the abandonment of the Oslo Accords by the Palestinian Authority.

When it comes to Palestinian popular perceptions on the development of the Gaza marine gas field, these are reportedly divided between optimists and pessimists. According to the first group, the field’s development would give a positive shock to the Gazan economy by means of job creation and full payment of salaries for public sector employees. As known, the Palestinian Authority currently withholds monthly salaries of public employees by almost 25 percent. Optimists also expect that gas prices will lower thus lifting much of the economic burden on households. At the political level, optimists support that the advancement of the Palestinian economy could pave the way for intra-Palestinian reconciliation between rival political leaders.

Pessimists, on the other hand, argue that economic benefits will be minimal as tax on Gazan gas is expected to be imposed simultaneously by Hamas, Israel, and Egypt thus minimizing prospects of low energy cost and improved living conditions. In addition, they advocate that the gap between Palestinian factions will widen rather than reconcile. To this end, pessimists cite the failure of Palestinian factions’ leadership to reconcile during the recent Egyptian Summit of El-Alamein.

Egypt’s Multileveled Mediation

Egypt has been well positioned to broker negotiations between Hamas and Israel, while Jordan used its political leverage over the Palestinian Authority and hosted a meeting to ensure that discussions continued unabated. In fact, Egypt and Jordan have been third parties in the Palestinian-Israeli meetings held in Aqaba and Sharm Al-Sheikh where the development of the Gaza marine gas field was at the heart of discussions, and a roadmap was put forward for de-escalation of tensions in Gaza.

The economic and regional benefits that Egypt will get from the Palestinian-Israeli agreement on the Gaza marine gas field’s development have been key to the success of Egyptian mediation. Despite the unchanged nature of Egypt’s cold peace with Israel, Egypt has appeared decisive to help Israelis and Palestinians pitch a vision to create shared solutions on energy challenges and opportunities with the Gaza marine gas field at the epicenter.

As per the terms of the preliminary agreement, Egyptian state-owned EGAS will take over development operations of the Gaza marine gas field and secure financing for the overall project. Financing constitutes a crucial element for the project’s development and requires political risk insurance as well as certain payment guarantees initially provided by EGAS and at a later stage by financial institutions.

Related development plans, that are likely incorporated in the economic incentives’ package offered to Hamas during discussions in exchange for long-term truce, include the construction of a new port to improve living conditions in Gaza. These plans foresee, among other options, either the construction of an Egyptian port in El-Arish so that cargoes are transported to Gaza through Kerem Shalom border crossing at the junction of Gaza, Israel and Egypt, or the construction of a Palestinian port on the Egyptian part of Gaza’s south border. Both options entail a leading Egyptian role that centers on investing in critical infrastructure to support the Gazan economy.

At the regional level, Egyptian successful mediation has enhanced Cairo’s leadership role with an emphasis on geoeconomics. In fact, Egypt seeks to pursue its strategic objectives in the region through attraction of economic inflows to enhance its national security and through creation of economic interdependencies balancing between competition and cooperation among geopolitical rivals. The Gaza marine gas field development falls under the category of projects that can cement regional economic interdependencies through a right balance between security considerations and economic cooperation.

The Art of Jordan’s Shuttle Diplomacy

It is upon this regional logic that Jordan used existing partnerships to prepare the ground for the resumption of Israeli-Palestinian talks with initial focus narrowly on the development of the energy-related project in Gaza and the Palestinian Authority’s empowerment. Jordan’s status as an important regional player and mediator between interested parties has been enhanced as a long-awaited win-win initiative has been finally got back to track.

Jordan stands to benefit from the development of the Gaza marine gas field that can be leveraged to create interdependencies. Jordanian state-owned National Electric Power Company (NEPCO) signed in 2015 a Letter of Intent (LoI) with then operator of the Gaza marine field for the supply of approximately 180 million cubic feet (mcf) of gas per day from the Gaza marine field to Jordan. Despite that the LoI is not technically doable at this point due to lack of proper pipeline network, Jordan’s political commitment is timeless.

Development of a regional energy and transportation infrastructure can pave the way for the promotion of quadripartite trade between Jordan, Egypt, Palestine, and Israel.  For example, a “water-energy nexus” in a project where solar can be used to generate energy, which would in turn power desalination plants and generate shared drinking water can prove multiply beneficial. As the Jordanian public is averse to importing Israeli gas, converting it into water could scour the stigma not only facilitating trade but also delivering dividends of peace in the form of shared resources.

An additional project that can enhance interdependencies and complementarities is the proposed development of a monorail that would carry hundreds of containers per day from the Israeli port of Haifa to the Jordanian land port of Haditha thus improving trade and supply chain operations for Palestine, Israel, and Gulf countries. There are certain political roadblocks, however, that must be overcome such as the need to achieve equal access for Israelis and Palestinians, and the consent of Egypt due to the project’s likely impact on the Suez Canal’s traffic.  

Jordan stands to benefit from development of gas discoveries offshore Gaza. Aqaba’s Liquefied Natural Gas (LNG) terminal has the potential to become a second regional energy hub. Out of various options, Palestinian gas can be directed to Egyptian liquefaction plants and onward to Jordan, where it could be piped via the Arab Gas Pipeline to Syria, and Lebanon. This scheme would help diversify the region’s energy suppliers and routes. It would also advance Jordan’s energy diversification efforts, which include the import of gas primarily from Egypt, the further development of domestic fields like the Risha gas field, construction of a dual oil and gas pipeline from Iraq, and acceleration of the shift toward renewables.

A Final Note

Unquestionably, energy cooperation and the related economic development along with security considerations were key components that led to the preliminary Palestinian-Israeli agreement on the development of the Gaza marine gas field, with Hamas at the backyard. Considering its promising economic, security, and diplomatic benefits for Egypt, Jordan, Palestine, and Israel, it has become more than evident that the Gaza marine gas development project must be implemented swiftly. Simply put, a “win-win” enterprise seems to be on the regional horizon!

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5 ways to power the energy transition

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Transitioning to renewable energy is the key to securing humanity’s survival, as “without renewables, there can be no future”, according to UN Secretary-General António Guterres, ahead of the International Day of Clean Air for Blue Skies, marked on 7 September.Renewable technologies like wind and solar power are, in most cases, cheaper than the fossil fuels that are driving climate change, but the world needs to prioritize the transformation of energy systems to renewable energy.

The Climate Ambition Summit, scheduled for 20 September at UN Headquarters in New York, will consider how to accelerate this transformation.

Here are five ways that acceleration could happen:

1. Shift energy subsidies from fossil fuels to renewable energy

Fossil fuel subsidies are one of the biggest financial barriers hampering the world’s shift to renewable energy.

The UN Secretary-General has consistently called for an end to all international public and private funding of fossil fuels, one of the major contributors to global warming, calling any new investments in them “delusional”.

“All actors must come together to accelerate a just and equitable transition from fossil fuels to renewables, as we stop oil and gas expansion and funding and licensing for new coal, oil, and gas,” he said.

The International Monetary Fund (IMF) revealed that $5.9 trillion was spent on subsidizing the fossil fuel industry in 2020 alone. This figure includes subsidies, tax breaks, and health and environmental damages that were not priced into the initial cost of fossil fuels. 

That’s roughly $11 billion a day.

Shifting subsidies from fossil fuels to renewable energy leads to a reduction in their use and also contributes to sustainable economic growth, job creation, better public health, and more equality, particularly for the poorest and most vulnerable communities around the world.

2. Triple investments in renewables

An estimated $4 trillion a year needs to be invested in renewable energy until 2030 in order to reach net-zero emissions by 2050. Net zero is the term which describes achieving the balance between carbon emitted into the atmosphere and the carbon removed from it.

Investment in renewables will cost significantly less compared to subsidizing fossil fuels. The reduction of pollution and climate impact alone could save the world up to $4.2 trillion per year by 2030.

The funding is there, but commitment and accountability are needed, particularly from global financial systems. This includes multilateral development banks and other financial institutions, which must align their lending portfolios towards accelerating the renewable energy transition.

“Renewables are the only path to real energy security, stable power prices and sustainable employment opportunities,” the UN chief said.

He has further urged “all governments to prepare energy transition plans” and encouraged “CEOs of all oil and gas companies to be part of the solution”.

3. Make renewable energy technology a global public good

For renewable energy technology to be a global public good, meaning available to all and not just to the wealthy, efforts must aim to dismantle roadblocks to knowledge-sharing and the transfer of technology, including intellectual property rights barriers.

Essential technologies such as battery storage systems allow energy from renewables to be stored and released when people, communities, and businesses need power.

When paired with renewable generators, battery storage technologies can provide both reliable and cheaper electricity to isolated grids and off-grid communities in remote locations, for example, in IndiaTanzania, and Vanuatu.

4. Improve global access to components and raw materials

A robust supply of renewable energy components and raw materials is a game changer. More widespread access to all the key components and materials is needed, from the minerals required for building wind turbines and electricity networks to elements for producing electric vehicles.

The UN’s International Seabed Authority is currently working with its Member States on how to exploit such abundant mineral resources in international waters as those crucial for manufacturing batteries while ensuring the effective protection of the marine environment from harmful effects that may arise from deep-seabed-related activities.

It will take significant international coordination to expand and diversify manufacturing capacity globally. Greater investments are needed, including in people’s skills training, research and innovation, and incentives to build supply chains through sustainable practices that protect ecosystems.

5. Level the playing field for renewable energy technologies

While global cooperation and coordination is critical, domestic policy frameworks must urgently be reformed to streamline and fast-track renewable energy projects and catalyse private sector investments.

Technology, capacity, and funds for renewable energy transition exist, but policies and processes must be introduced to reduce market risks to both enable and incentivise investment, while simultaneously preventing bottlenecks and red tape.

Nationally determined contributions, or countries’ individual action plans to cut emissions and adapt to climate impacts, must set renewable energy targets that align with the goal of limiting the increase in global temperatures to 1.5°C (2.7°F) above pre-industrial levels.

To achieve this, it is estimated that the share of renewables in global electricity generation must grow from 29 per cent today to 60 per cent by 2030.

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Women of the Global South Are Key to the Energy Transition

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As a businesswoman who has dedicated my life to elevating opportunities for African women, I’ve seen how the historical exclusion of women – and especially women from Africa and the Global South – from international climate talks has derailed climate action.

Only by rectifying this systematic marginalisation of women can Africa fulfil its true potential as a leading global renewables powerhouse.

That is why I am celebrating attempts at the Africa Climate Summit, the first of its kind being held in my home country Kenya, to push back against entrenched gender inequalities.

If we fail to marry the energy transition with the goal of empowering women, the continent will not succeed in combating climate change.

In a ground-breaking move, the African Union Commission, which represents 55 African countries, signed a joint statement with the Government of Kenya and the UAE presidency of the upcoming COP28 UN talks in Dubai, endorsing the goal of tripling renewable energy capacity and doubling energy efficiency to stay within the 1.5C safe limit for global warming. The statement also calls for a “comprehensive systems change”, including the need to transform “food and health systems” while protecting nature and biodiversity.

Neither African governments nor previous COP presidencies have placed such wildly ambitious goals on the political agenda before. And although these goals have not yet taken the shape of a binding agreement, they are being supported with real action.

At the Africa Climate Summit, COP28 president Dr Sultan Al Jabr announced that the COP28 presidency itself will invest $4.5 billion to mobilise up to tens of billions more in African clean energy projects. According to Al Jabr, the point of the pledge is “to clearly demonstrate the commercial case for clean investment across this continent” and to create “a scalable model that can be replicated to help put Africa on a superhighway to low carbon growth”.

This is a huge milestone—with one major caveat: women must become linchpins in the continent’s new, evolving clean energy landscape.

That means overturning years of women being side-lined in climate talks and overlooked in governmental and institutional planning. Just 9% of energy project aid focuses on gender equality, and the UN’s clean energy goal (SDG7) omits gender entirely.

Currently women bear the worst impacts of climate change and energy poverty, accounting for 80% of food production and over 60% of agricultural employment in sub-Saharan Africa. Yet over three-quarters of total public climate-development finance in Africa this decade failed to consider gender at all.

And across Africa, women are marginalised from politics, education and employment. Previous UN climate talks have in effect discussed an ‘energy transition’ by and for men.

This gender-blindness is literally killing the planet. Companies with more women on their boards are more likely to lead them into policies aligned with the goal of capping climate change at 1.5C; and women around the world overall do more than men to change their behaviour to reduce emissions: so excluding them is an existential risk.

That’s why I’m celebrating how this week African nations are uniting for the first time not just to combat Africa’s climate threat, but also to highlight the gender inequalities preventing us from implementing real solutions.

As the First Lady of Kenya, Rachel Ruto, pointed out at the summit, only by equipping women with knowledge and skills can they be empowered to become champions of clean energy and sustainability. She convened a meeting of senior women leaders at the summit to focus on the critical importance of women to the success of the energy transition.

The lessons of the Africa Climate Summit must be taken all the way to the United Nations climate talks later this year. The goal of tripling renewable energy capacity, as the African Union Commission has now endorsed, is only one half of the equation. The other half is removing the barriers preventing women from racing toward this target. This must be enshrined in any global agreement – without it, not only Africa’s but the world’s clean energy transition will fail.

There are signs of progress. COP28 has already appointed women to senior roles representing the presidency, with Shamma Al Mazrui, UAE Minister of Community Development, appointed as Youth Climate Champion and Razan Al Mubarak, President of the International Union for Conservation of Nature appointed as the UN Climate Change High-Level Champion.

And just under half of COP28’s advisory committee are women, a big step-up compared to previous COPs which failed to include women at a senior role. The presidency has also called on all delegations to explicitly increase the role of women and young people in negotiations to make this “the most inclusive” COP.

Yet though these are big milestones, they are still baby steps. It’s time for world leaders to recognise that without empowering the world’s women on the frontlines of the battle against climate change, no global agreements will produce the change we need.

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