Reuters’ Factbox: Fossil fuel-based vehicle bans across the world is a snapshot of what will happen in the major economies of the world by the near future. Could the same be decided upon in the MENA region countries, hence the feature picture above, that is of typical daily road congestion in Cairo. It is for illustrative purposes.
Britain last year became the first G7 country to set in law a net-zero emission target by 2050, which will require wholesale changes in the way Britons travel, use energy and eat.
Other countries or regions that have pitched the idea of banning fossil-fuel based vehicles include:
California will ban the sale of new gasoline-powered passenger cars and trucks starting in 2035, Governor Gavin Newsom said in September.
The Canadian province of Quebec said this week it would ban the sale of new gasoline-powered passenger cars from 2035.
EU environment ministers struck a deal on Oct 23 to make the bloc’s 2050 net zero emissions target legally binding, but left a decision on a 2030 emissions-cutting target for leaders to discuss in December.
German cities started to introduce bans on older diesel vehicles that emit higher amounts of pollutants than from late 2018. (reut.rs/38UFw6L)
Norway, which relies heavily on oil and gas revenues, aims to become the world’s first country to end the sale of fossil fuel-powered cars, setting a 2025 deadline. Fully electric vehicles now make up about 60% of monthly sales in Norway.
In 2017 China begun studying when to ban the production and sale of cars using traditional fuels but did not specify when it might be introduced.
Sales of new energy vehicles (NEV) will make up 50% of overall new car sales in China, the world’s biggest auto market, by 2035, an industry official said last month.
Last year, India’s central think-tank asked scooter and motorbike manufacturers to draw up a plan to switch to electric vehicles. The think-tank also recommended that only electric models of scooters and motorbikes with engine capacity of more than 150cc must be sold from 2025, sources told Reuters.
Reporting by Aakash Jagadeesh Babu and Samantha Machado in Bengaluru; Editing by Gareth Jones
Iraq’s Prime Minister inherited a series of fiscal crises. As his interim government struggles to avert a complete economic collapse, austerity measures may come at the expense of much-needed reforms.
Since taking office, Iraqi Prime Minister Mustafa al-Kadhimi has faced a series of fiscal and security crises amid collapsing public services and protests. The collapse in global oil prices due to the coronavirus pandemic and the Saudi-Russia oil price war caused Iraq to face an internal solvency crisis as early as June. This fiscal crisis has short and long-term implications. In the short-term, Baghdad continuously struggles to pay public sector salaries, which required the state to borrow from the Central Bank over the summer. With low oil revenue, the state’s monthly profits are covering just over 50 percent of its expenses. In the longer-term, Iraq faces a looming macro-fiscal state collapse—potentially within the next year.
The state is struggling to cover its monthly expenses. Over successive governments, the size of the public sector has grown to the point that Iraq needs to spend more than its total revenue on basic payments—public sector salaries, pensions, food aid, and welfare—to keep a majority of Iraq’s population out of destitution. In 2019, oil revenue averaged $6.5 million per month, and with modest non-oil revenues (largely customs, well less than $1 billion per month), this covered operational expenses with a small amount left over for capital spending. Since the recovery of oil prices after the March collapse, Iraq’s monthly oil revenues have averaged just over $3 billion/month, hitting a high of $3.52 billion in August. In testimony before parliament in September, Finance Minister Ali Allawi revealed that with revenues at these levels, the government was still borrowing 3.5 trillion Iraqi Dinars (IQD) — just over $3 billion—from the Central Bank each month.
On October 10, as Iraq’s cash crunch became more acute, Allawi explained that state employee compensation rose from 20 percent of oil revenues in 2005 to 120 percent today. To help the public understand why the government of such an oil-rich country was broke, he explained that a government of this size should have at least $15 to 20 billion in funds to pay monthly expenses on an ongoing basis, but when this government took office, only about $1 billion was available. This is in part due to weak revenues, the result of low oil prices and Iraq’s adherence to OPEC’s limitations on oil exports. In the past, Iraq’s oil exports have reached 3.5 million barrels per day (bpd), yet they decreased to 2.5 million bpd in recent months. Prominent figures, including former oil minister Ibrahim Bahr al-Ulum, have argued in favor of leaving the OPEC agreement unilaterally. Yet Allawi, speaking before Parliament, explained that while he agreed that OPEC’s quota formula was unfair, Iraq needs the OPEC agreement to keep oil prices from collapsing. More recently, according to the Iraq Oil Report, the government has signaled that it may try to thread the needle by increasing exports by 250,000 barrels per day to satisfy critics—an amount above its quota, but still about 750,000 barrels per day below peak production, and thus hopefully too small an increase to incur Saudi retaliation.
Iraq’s monthly oil revenue to collapsed from $6.2 billion in January to just $1.4 billion in April. The figure recovered to $2.9 billion in May and has gradually improved since, but in August was still just $3.5 billion. Since the government only had about $3 billion in expendable reserves in May, it became clear that Iraq could not pay state employees in June. Salaries over the summer were paid as money became available. As late as July 28, the prime minister’s spokesman admitted that employees at the Culture & Antiquities Ministry (apparently the lowest priority), were still waiting to be paid.
The government saw this crisis coming and began preparing the public for austerity. Finance Minister Allawi made multiple public appearances, describing Iraq’s situation as dire and arguing for radical reform. In particular, he predicted that the government, while protecting base salaries, would make large cuts to employee benefits and other costs. On June 9, the cabinet followed through when it voted to implement a series of austerity measures, including cutting benefits, cutting unessential spending, and capping income from “double-salary” payments. Kadhimi’s advisor Hisham Daoud described the new policies as “not enough but only a start” toward reform.
Kadhimi, with no electoral base or political base of his own, has faced the fiscal crisis with a weak hand. This became clear when Parliament overwhelmingly rejected the government’s austerity policies on June 10, one day later. Even MPs friendly to the government described the government’s measures as premature, suggesting that they should try to raise revenue through customs first. Parliament eventually passed a borrowing law on June 24 to allow the government to borrow just enough to make basic payments. This law, however, prohibited the government from cutting benefits. Previously, the cabinet had the authority to cut benefits because, unlike salaries set by law, benefits were set by previous cabinet decrees. Thus, Parliament made the long-term problem worse.
In July, protests resurged in Baghdad as a result of the fiscal crisis. The shortage of money caused Iraq’s electricity shortage to worsen dramatically. Outgoing Electricity Minister Luay al-Khatteeb attributed the decline to two factors: lack of maintenance and the suspension of planned electricity projects.
The government has a few possible, but politically difficult, fixes at its disposal. They could cut the subsidy of roughly $1 billion per month to private electricity consumption, which exists because the ministry only collects a fraction of consumer payments. Finance Minister Allawi pointed out that “people don’t pay their electricity bills” and that “95 percent” of consumption costs was absorbed by the state, asserting that “electricity is not a constitutional right.” Yet such an effort will recall former prime minister Haider al-Abadi’s experience trying to extract electricity payments in 2017, which precipitated a strong protest movement. So far, Kadhimi has shown no sign of pushing the issue. His published comments during a cabinet meeting devoted to the electricity issue focused on “reducing bureaucracy” and improving maintenance, sidestepping the fact that maintenance workers have to be paid.
Iraq’s fiscal crisis comes on the heels of the political crisis of the outgoing government, which left the country without a budget for most of 2020. In such cases, Iraqi law allows the government to spend one twelfth of the previous year’s actual spending each month. Since this year’s revenues have been low, it never had the money to spend that much and simply spent what it had on basic payments. In September, the government released a budget for 2020 and the planned deficit was large—well over 100 percent—so as with past budgets much of the deficit will likely not be spent. The total anticipated revenues are 67.4 trillion dinars, or $57 billion, compared with proposed expenditures of 148.6 trillion dinars, or $125.7 billion. Oil revenue in 2019 was $78.5 billion yet is projected to be just $49.3 billion for 2020. The government withdrew the bill just two days after it arrived in parliament.
In September the government ran out of money, having used up the borrowing authority from the June bill. Given the population’s overwhelming dependence on state salaries, this brought the short-term financial problems to the fore. Furthermore, Parliament refused to authorize the new borrowing authority Allawi sought because the government had not submitted a “reform plan.” Thus in early October the government released a “White Paper” reform plan. The plan draws a broad and long path to reform that does not directly address the immediate crisis, except to the extent that its publication formally satisfies Parliament’s precondition for new borrowing.
An important part of Allawi’s efforts was his advocacy of Iraq accepting an International Monetary Fund “Stand-By Agreement” (SBA) which might be the only way to prevent a fiscal collapse next year. The agreement would also require spending cuts that parliament has already rejected. Allawi stressed that the IMF would not require cuts to programs protecting the poor, but rather to public sector compensation that, in Allawi’s view, Iraq needed to cut anyway.
This set the stage for a new debacle as the government then sent a new borrowing law to Parliament only to condemn it. A member of Parliament on the Finance Committee criticized the figures in the bill as irresponsible. Given the parliament’s role in aggravating the crisis, this was grandstanding. The looming parliamentary elections, due no later than 2022 and possibly earlier, are driving the political theater. Parliament will presumably pass an amended version of the government’s borrowing bill to allow the government to pay salaries. In the meantime, with salaries being paid late, disposable income is squeezed, further damaging an already weak economy. But Iraq could face a much worse scenario in 2021, as the IMF’s updated forecast for Brent oil prices projects $46.70 per barrel. Iraq’s Central Bank, which rescued the government over the summer, relies on a steady flow of dollars from oil revenues and given current prices range from $40 to $45, reserves are gradually declining. According to financial analyst Ahmed al-Tabaqchali, at current oil prices the Central Bank can continue to print money to fund the government “for about eight or nine months.”
In terms of immediate steps, at a minimum, a devaluation of the Iraqi dinar (long pegged at 1,182 to the dollar) seems likely in 2021. This would relieve some pressure on the Central Bank and make the government’s expenses cheaper (since its income is in dollars), but it would also drive up inflation over time. The bigger threat is that by mid-to-late 2021, the Central Bank will no longer be able to support the government, forcing austerity through non-payment of operational expenses, including salaries.
It is clear that the government needed to adopt a policy of cutting public sector expenses while increasing its capital investment in agriculture and industry and devoting more resources to education and health. Kadhimi’s reform measures in June were too little, too late. Still, the austerity that Parliament has resisted will be inevitable if oil prices do not rise dramatically in the months to come. A key priority from an international point of view is that the IMF, as a condition for its loans, impose upon Iraq the reforms for which Allawi has been advocating and which parliament has so rejected. It does not seem likely that reform will come to Iraq by any other means.
Kirk H. Sowell is the publisher of the biweekly newsletter Inside Iraqi Politics (www.insideiraqipolitics.com). Follow him on Twitter @uticarisk.
 In most of these comments, Allawi gives the figures in Iraqi dinars. I have converted them to dollars. Thus, he said, for example, that the Finance Ministry had 1.3 trillion IQD when he came into office. This is slightly over $1 billion.
 When a family received a payment for a deceased breadwinner and receives another government benefit.
 Testimony by the finance minister and discussion of the budget starts at 1:38:00.
 In the previously cited video from Parliament on September 8, he refers to the IMF briefly around 2:25:00, then again around 2:48:00, and once more near then end of the four-hour video in response to an MP attacking the IMF option.
 The reading begins at 00:09:00 and the comments referred to in the text follow.
 Author interview conducted on October 28, 2020 via Skype.More on:
OPEC, Unconventional Oil and Climate Change – On the importance of the order of extraction by Benchekroun, Hassan, Gerard van der Meijden, and Cees Withagen. Published by the Journal of Environmental Economics and Management is a long-awaited reflection on what could be the most important topic of the century. The abstract and part of the introduction are republished below, and the whole text could be found in the original referred to document.
We show that OPEC’s market power contributes to climate change by enabling producers of relatively expensive and dirty oil to start producing before OPEC reserves are depleted. We examine the importance of this extraction sequence effect by calibrating and simulating a cartel-fringe model of the global oil market. While welfare net of climate damage under the cartel-fringe equilibrium can be significantly lower than under a first-best outcome, almost the entire welfare loss is due to the sequence effect of OPEC’s market power. In our benchmark calibration, the cost of the sequence effect amounts to 15 trillion US$, which corresponds to 97 percent of the welfare loss. Moreover, we find that an increase in non-OPEC oil reserves decreases global welfare. In a counterfactual world without non-OPEC oil, global welfare would be 13 trillion US$ higher, 10 trillion US$ of which is due to lower climate damages.
What is the impact of imperfect competition in the oil market on climate change? This question is relevant given the sizable carbon footprint of oil and the prominent size of OPEC. Oil is responsible for close to a quarter of anthropogenic carbon emissions (IEA, 2016)1 and, with OPEC producing 40 percent of global oil supply and owning 70 percent of world oil reserves (EIA, 2019b), it is not realistic to assume that OPEC is a price taker in the market of oil.
An old adage says that “the monopolist is the conservationist’s best friend” (e.g., Dasgupta and Heal, 1979, p. 329). Indeed, we know from non-renewable resource economics that market power typically leads to higher initial resource prices and slower resource depletion. However, in the case of oil, the consequences of imperfect competition for the Earth’s climate are more complex because different types of oil reserves with varying carbon contents are exploited. The reason is that imperfect competition does not only affect the speed, but also the order of extraction of different reserves of oil (cf. Benchekroun et al., 2009, 2010, 2019). Conventional OPEC oil is cheaper and its extraction is less carbon intensive than unconventional oil owned by relatively small oil producers (Malins et al., 2014; Fischer and Salant, 2017; OCI, 2019). Technically recoverable reserves and production of unconventional types of oil by non-OPEC countries have grown significantly over the last decade. The supply of oil sands from Canada has more than doubled, and shale oil production in the US has increased more than tenfold since 2007 (CAPP, 2017b; EIA, 2019b). Current recoverable reserves of Canadian oil sands and of US shale oil amount to 165 and 78.2 billion barrels, respectively (CAPP, 2017a; EIA, 2019c). In this paper, we take into account that when OPEC exercises market power it does not only slow down its rate of extraction—which tends to be good for the climate—but it also opens the door for earlier production by the fringe. As a result, OPEC’s relatively cheaper and cleaner oil is extracted later, while the fringe’s costlier and dirtier oil is extracted earlier. This ‘sequence effect’ leads to higher discounted extraction costs and climate damage.
The outlook for MENA’s current account and fiscal balances also deteriorated sharply. Driven largely by lower oil export revenue, a drop in fiscal revenue, and the large increase in fiscal expenditure required to respond to the health crisis, the region’s current account and fiscal balances in 2020 are forecast at -4.8% and -10.1% of GDP respectively, much worse than the forecasts in October 2019. Public debt is projected to rise significantly in the next few years, from about 45% of GDP in 2019 to 58% in 2022.
In dealing with the COVID-19 pandemic, the top priority is responding to the health crisis while aiming to preserve consumption and production capabilities. If financially feasible, countries should postpone fiscal consolidation until recovery is well underway. Reallocating spending to deal with the immediate impacts of the crisis and making such spending more efficient, for example, by proactively reducing leakages to ensure relief measures reach the intended beneficiaries can help create fiscal space. In the medium run, there is a strong need to boost productivity to restore growth and stabilize the debt. A powerful way to do that would be to pursue profound institutional reforms that would reshape the role of the state, promote fair competition, accelerate the adoption digital technology, and pursue regional integration, which is the focus of this report.
CHAPTER I: Coping with a Dual Shock in the Middle East and North Africa
Countries in the Middle East and North Africa (MENA) face both a COVID-19 pandemic and a collapse in oil prices. Trade volumes are estimated to have fallen sharply. Preliminary data for April from the United Nations Conference on Trade and Development suggests a roughly 40% decline in trade for the region. The downturn is expected to accelerate in sectors with strong value chains, particularly in electronics and automotive products.
CHAPTER II: Reviving Middle East and North Africa Regional Trade Integration in the Post-COVID-19 Era
Trade openness can be significant in achieving inclusiveness. However, to promote growth that benefits all segments of society, trade reforms must move in parallel with other policy reforms. The benefits of trade openness might otherwise be canceled by other economic and social measures. The contributions of trade openness to inclusive growth can be uneven and cannot be understood without considering how it affects all factors of production, benefiting some and hurting others.
Electrifying has a question: Is the private sector fit tor the energy transition? On October 1, 2020, it is of actuality. The rush towards all renewables although very commendable could nevertheless prove messy. But let us read on :
Following our post on government initiatives of selected countries with regards to renewable energy subsidies, targets and ambitions, we have researched the private sector to obtain a more in-depth look into the big players and their plans for the renewable revolution.
Following media, LinkedIn and press releases of those big fish one might think the move from fossil energy resources to renewable energy will be a walk in the park. But are the measures set, enough to force a clean energy transition and are we on track to complete all the ambitious goals?
Frankly, we have become a bit sceptical during the lockdown when the total amount of energy used has fallen (temporarily, at least) by about 20%, and a mass of posts and articles on all available platforms ringing in the age of renewable energy sources. However, those voices seem to have been silenced recently as the energy hunger is rising again, and renewable energy resources don’t provide enough power to cope with the demand.
A look behind the facades by analyzing the plans and forecast of energy supply enterprises should provide some more detail on how our power will be produced in future.
The table below outlines all the available climate strategies and pledges of the selected corporations by comparing them against the Paris Agreement. The outcome is, frankly, pretty obvious. None of the investigated companies comes anywhere near the 1.5 Celsius target. To reach that target, they should stop new fossil exploration and phase out existing reserves, which clearly isn’t the case.
We have taken BP, which emerges as the best performing company within the selected lot, to analyze its climate strategy.
Scrolling through their homepage offers the impression of a company striving towards net-zero emissions with ambitious climate goals by living up to their new strategy and business model to convert from an oil company to an integrated energy company. However, as of now, most of these measures are time-intensive papers and not reality.
Admittedly, BP is investing vast amounts of capital towards the development of renewable energy assets and has set itself ambitious goals. How come, them, this still isn’t enough?
In our opinion, the answer can also be found on their homepage: ‘Renewables are the fastest-growing energy source, contributing half of the growth in global energy…’ This statement sums up the situation we are in pretty precisely. Renewable energy is not replacing fossil energy but covering about 50% of the rising demand.
Does this mean that if even one of the most ambitious energy companies isn’t able to budget and forecast with targets according to the Paris Agreement, we won’t get rid of dirty fuels in the foreseeable future?
Bernard Looney, CEO of BP, states that: ‘By following this strategy, we expect bp to be a very different energy company by 2030.’
This statement is not satisfying as indeed renewables have proven to be competitive already. What’s more, as an energy company, this form of energy supply is hard to ignore in going forward. On the other hand, it may be a statement not promising too much of a change rather than telling everyone what they want to hear and failing that hussar ride.
Anyway, we acknowledge BP to be an innovator and thought leader among all oil companies and would appreciate the same ambition of their competitors as well.
However, having researched the companies shaping our energy future, we start to think that another massive push is needed towards reaching the Paris Agreement and maximum warming of 1.5 degrees.
The push might come from major renewable energy companies like Siemens, Vestas, GE Energy, NextEra Energy, Inc., Suzlon, Berkshire Hathaway Energy, Avangrid Renewables, EDF Energy, NEXT Energy Capital, European Energy, Obton, Orstedt, Luxcara, and Green Investment Group, all leading the way forward.
We would love to see such companies teaming up with oil companies for know-how sharing and collaboration towards a more sustainable future.
To close this blog, we would like to cite another statement of Bernard Looney which is meant to describe BP’s situation but also outlines the global circumstances within these odd times very well:
We are operating in an environment of greater uncertainty than at any time most will recall. But we are in action. Not just to weather the storm. But to emerge transformed and stronger for the opportunities ahead in the energy transition and our net-zero ambition.
At a time, when important issues are being raised and out of the ordinary tensions are taking place concerning gas fields, Algeria faces geostrategic gas tensions in the Mediterranean. It is, in particular, the tensions between Greece and Turkey, challenging it where its primary gas market is, in Europe, and whose hydrocarbons with derivatives provide 98% of foreign exchange revenues in 2019, where the price of gas disposal has fallen by more than 75% in 10 years and providing 33% of its SONATRACH’s revenues. Here is an analysis of options for this unprecedented east Mediterranean situation as seen from Algeria.
Between 2018/2019, according to the IEA we have the following distribution 33.1% of oil, 27.0% coal, 24.2% natural gas, 4.3% nuclear and 11.5% renewable energy (hydropower 6.5%, wind 2.2%, biomass and geothermal 1.0%, solar 1.1%, agrofuels 0.7%).
Natural gas is derived from fossil fuels and is made up of decomposing organic matter that has been released into the soil for millions of years and is routed through pipes. We have liquefied natural gas as far as it is a natural gas that has been changed to a liquid state so that it can be transported and stored more easily. Because natural gas deposits are often far removed from many consumers of this energy, transporting it in a gaseous state is risky and expensive.
Also and by cooling it, it is possible to transform it into liquid natural gas, There are two main markets on which the world’s natural gas is traded. The most important is the NYMEX or New York Mercantile Exchange located in the United States, and the second, the NBP or National Balancing Point of the International Petroleum Exchange located in London. There are other smaller markets such as the FTT in the Netherlands or The Zeebrugge in Belgium. Between 2018/2019, before the coronavirus outbreak, according to Cedigaz, demand increased, strengthening its place in the energy mix. In 2018, international LNG represented a provisionally estimated volume of 311 Mt, according to Cedigaz, up 8.5% from 2017. LNG now accounts for more than a third of gas trade, with growth in LNG imports concentrated in Northeast Asia (China and South Korea), where gas plays an increased role in electricity generation and heating. China contributes the most to the growth in global LNG demand, with more than 60% of the total increase in trade.
Proven world reserves on a total of 197.394 billion cubic meters of gas (data from 2018/2019) we have in descending order: Russia 47,800 billion cubic meters, Iran 33,500, Qatar 24,300, USA 8,714, Saudi Arabia 8,602, Turkmenistan 6061, Venezuela 5702, Nigeria 5,284, and China 5,194 and for Algeria between 2500 and 3000 according to the statement of the current Minister of Energy before his appointment and the communiqué of the Council of Ministers of 2014, the data of 4500 being those of BP of the years 2000. The top 10 countries producing natural gas in descending order are. Russia alone accounts for 20% of world natural gas production. It is also the largest exporter, second with the shale gas revolution becoming an exporter in Europe, the United States of America, followed by Canada (third place) and Qatar fourth, with Iran downgraded following US sanctions, followed by Norway, China, Saudi Arabia, and Algeria, which ranked ninth. These data should be interpreted with caution because thousands of deposits can be discovered, but not profitable according to financial standards depending on operating costs and the evolution of the international price itself depending on the demand and competition of substitutable energies As for some experts who speak of an OPEC gas market in the image of OPEC oil, it should be stressed that the gas market is not in this month of August 2020, a global market but a market segmented by geographical areas while the oil market is homogeneous, due to the preponderance of pipelines, being impossible to meet the same criteria, the solution being cooperation within the FPEG which consists of 11 member countries (5 in Africa (Algeria , Egypt, Equatorial Guinea, Libya, Nigeria) – 2 in the Middle East (Iran, Qatar); – 3 in South America (Bolivia, Trinidad and Tobago, Venezuela) and Russia, 9 non-member countries with observer status: Angola, Azerbaijan, the United Arab Emirates, Iraq, Kazakhstan, Malaysia, Norway, Oman and Peru, the United States, one of the world’s leading gas producers, are not part of the FPEG.. To one day reach a gas market that meets oil market standards (daily listing), the share of LNG would have to increase from 30% to more than 80%. Until then, because investments are hefty, everything will depend on the evolution between 2020/2030/2040, on-demand for LNG which will depend on the new global energy consumption model that is moving towards the digital and energy transition with an increase in the share of renewables, energy efficiency and between 2030/2040 hydrogen which risks degrading a large part of the transition energy.
What about the current tensions in the eastern Mediterranean regarding the energy sector which is not immune to OPEC’s action, but indirectly affecting the price of energy and the market share of Algeria towards Europe its principal customer, recalling that there is a gas organisation independent of that of OPEC.
A friend, the polytechnician Jean Pierre Hauet of KP Intelligence, France rightly notes that the energy scene comes alive in the Mediterranean with at least two significant fields of manoeuvring which it is interesting to try to understand the ins and outs that explain the current tensions, especially in the eastern Mediterranean. The first theatre is that of renewable energy (wind, concentrated solar, photovoltaic) which has been characterised by the launch of major initiatives based on the idea that technical progress in direct current transmission lines would allow taking advantage of the complementarity between the electricity needs of the countries of the north and the availability of space and sun of the countries of the South. At the time, we were talking about 400 million euros of investments and the satisfaction of 15% of Europe’s electricity needs. Today, the Desertec project is instead at half-mast, due in particular to the withdrawal of major industrial players, Siemens and Bosch, and the consummate disagreement between the Desertec Foundation and its industrial arm the Desertec Industrial Initiative (Dii). Dii continues its ambitions to integrate European, North African and Middle Eastern networks, while the Desertec Foundation now seems to favour bilateral initiatives in Cameroon, Senegal and Saudi Arabia. The second theatre of operations is recent: it relates to the discovery from 2009 of deep offshore gas resources in the eastern Mediterranean, which explains the current tensions. Large companies that used to operate other more accessible, profitable fields or near facilities nearby, on land, are now turning to the eastern Mediterranean, off Egypt, Israel, Lebanon, Cyprus and Turkey, all countries that do not necessarily have good neighbourly relations. Because several gas deposits have been discovered off the coast of Egypt, Israel, Lebanon or Cyprus, at the heart of the so-called Levantine basin, it is estimated by the US Geological Survey at 3,452 billion cubic meters (m3). “For the producing or future producing coastal states, this gas resource offers the opportunity to achieve energy independence and a way to bail out their economy through potential exports” according to the Mediterranean Foundation for Strategic Studies in a well-documented report. That is why Turkey is conducting research. Even if Greece and part of the international community accuse it of having entered the Greek maritime space, international law is unclear in this situation which does not delineate borders and geographical boundaries. Gas resources can be found on or offshore limits of a country or in either transboundary or not clearly defined boundaries reservoirs, and the Turkish initiative could be the beginning of a long series of tensions that could transform regional balances. Because geological formations do not know the political borders, oil and gas companies have explored the marine subsea soils of neighbouring countries. This was followed by the uncovering of the Leviathan field (2010) also off the coast of Israel, Zohr (2015) in Egyptian waters, then Aphrodite (2012), Calypso (2018) and Glaucus (2019) around Cyprus. Exploration of Lebanese and Greek waters is not advanced. Athens has already allocated parcels to ExxonMobil, Spain’s Repsol or Total. On February 19, 2018, a historic $15 billion contract between Egypt and Israel provided for the supply of natural gas from the Tamar and Leviathan offshore reservoirs to Egypt, according to a report by the Mediterranean Foundation for Strategic Studies (FMEN). To ease tensions, although the countries of the Mediterranean all face the problem of energy security, it is above all a question of strengthening cooperation especially in the energy field, which can represent a vital link between the north and the South of the Mediterranean.
What is the case for Algeria where according to SONATRACH’s balance sheet in 2019, it makes up about 33% of its revenues, to which must be deducted the costs and the share of partners dependent on natural gas in order to have the net profit? The structure between natural gas exports through the two major Medgaz pipelines via Spain capacity, of 8 billion cubic meters gas and Transmed via Italy between 35/40 billion cubic meters of gas, currently under capacity, represents about 75% of the total towards its primary market Europe. LNG about 25% that provides it with more flexibility, Algeria is strongly competed against between 2020/2025 by the American, Russian, Qatari LNG. The latter has installed large capacity two to three times that of Algeria and for the gas piped by Russia the North Stream (55 billion cubic meters of capacity and the South Stream (capacity of 63 billion cubic meters gas), not forgetting as previously highlighted the discoveries in the Mediterranean. Nigeria and Mozambique are important producers with the latter country having the largest reserves in East African countries, with nearly 5 trillion cubic meters, on two offshore blocks in the province of Cabo Delgado in the far north of the country. By 2025/2030, Mozambique is likely to become the fourth-largest gas exporter in the world behind the USA, Qatar and Australia. In order to export to Asia, it will have to bypass the entire cornice of Africa posing the problem of profitability, in addition to the operating costs is added an exorbitant transport cost, unable to compete with Russia with the Siberian China gas pipeline, called “Power of Siberia”, more than 2000 km at the Chinese border, transporting 38 billion cubic meters of Russian gas to China each year by 2024/2025, a contract, estimated at more than 400 billion dollars over 30 years, signed by Gazprom and the Chinese giant CNPC, signed by Gazprom and the Chinese giant CNPC. Not to mention Iran and Qatar close to Asia. In the end, everything will depend for Algeria to enter the global market of cost requiring new strategic management of Sonatrach whose operating account for several decades depends fundamentally on external factors beyond its internal management, the international vector price, which led the president of the republic to demand an audit of this company. As for the world price between 2007 and September 2020, it fell by more than 75%, much more than for the oil. It has gone from 15/16 dollars for the GLN to 4/5 dollars and $9/10 for natural gas (GN). It has fluctuated between 2019/2020 between $1.7 and $2.5 per MBTU, in the open market. And recently between January 2020 and September 2020, we will have to take into account the dollar/euro rating which has depreciated by more than 11%, due to the uncertainties of the US economy and especially the swelling of the budget deficit bringing it back to the constant price thus having to draw the currency balance
In short, energy is at the heart of the sovereignty of states and their security policies. The world is moving during 2020 through 2030, inevitably towards the digital and energy transition with a new model of energy consumption and knowledge imposing on our leaders a cultural renewal far from the material mentality of the past that cannot lead the country with expensive projects, uncertain profitability to the impasse. Economic dynamics will alter global power relations and affect political recompositions within and regional spaces, hence the importance of understanding geostrategic energy issues and appropriate solutions, far from unrealistic discourses.
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