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What LEDs in Lima tell us about climate action

Posted by on 03/12/14

By Jason Anderson, Head of European Climate and Energy Policy at WWF European Policy Office

I arrived in Lima Saturday morning for the COP20 UN climate negotiations and went directly to my hotel for a 12-hour WWF preparatory meeting, to get into the spirit of the event. One of the key issues we discussed is how we come to terms with the gap between the contribution to emissions reductions needed from different countries compared to their current likely contributions – which are much too low both individually and in aggregate.

In the case of the EU, its 2030 target is ‘at least 40%’ below 1990 levels, but according to EcoEquity’s online equity calculator, the EU’s cuts should be 80% at a bare minimum, counting both domestic and supported international action together: far, far beyond what is being proposed.

Staring at the ceiling seeking inspiration for how to close that huge gap, I noticed that all of the spot lighting was LEDs – the latest 5 watt lights that replace 35-50 watt halogens. That means that every year the meeting room saves more than the equivalent of my own home’s entire annual electricity use.

Three Japanese scientists received the Nobel prize this year for inventing the technology that makes commercial white LED lights possible. As the Nobel committee’s press release says:

“The LED lamp holds great promise for increasing the quality of life for over 1.5 billion people around the world who lack access to electricity grids: due to low power requirements it can be powered by cheap local solar power. The invention of the efficient blue LED is just twenty years old, but it has already contributed to create white light in an entirely new manner to the benefit of us all.”

To get LEDs to the point that they are cheap enough to be of interest to developing countries, they had to go from a lab experiment to an inexpensive commercial technology – often a long road. The world leader is the Dutch company Philips (three of the top 10 are European, one is American and six are Japanese). Philips made a laudable business decision that LEDs were a big future market, but their confidence is likely reinforced by the supportive European policy environment. The EU is in the process of phasing out incandescent light bulbs, giving LEDs an opening that it will capitalise on in competition with compact fluorescents, as they reduce costs and improve performance. That tipping point has now basically been crossed, bringing LEDS to the point that a mid-range Peruvian hotel has chosen to install them without phase outs, mandates or subsidies.

Naturally, China is in line to become a big player in LEDs. The NDRC predicts that by 2015, the country will earn $30 billion in manufacturing and 20% of the market will be LEDs. Not uncoincidentally, China is also phasing out many types of incandescents in the next three years.

The LED story reflects the whole package we want to see across clean energy technologies: basic research lays a solid basis; companies are willing to take those technologies into nascent markets; governments, recognising they have environmental and economic goals to reach, set efficiency standards that expand those markets, encouraging more investment in the technology. Costs drop to the point that it becomes accessible globally.

We could tell a similar story about solar PV: obligations and subsidies, first in Japan, and then at even larger scale in Germany, increased markets to the point that large-scale manufacturing, including in China, brought down costs for everyone. Germany’s efforts driving PV down the innovation cost curve means that its efforts save the globe billions of dollars every year, and gives countries across the development spectrum the opportunity to take advantage of solar’s benefits.

The nature of the international negotiations can promote a static understanding of the actions needed to reach global decarbonisation well before the end of the century: it appears to be a numbers game, with the full range of efforts supposedly contained in percentages for which governments are meant to take responsibility, but come nowhere near achieving, with the remainder of the effort deferred, or shoved under the carpet.

This view is depressing and disempowering – it makes failure appear nearly inevitable, and it undermines the momentum everyone knows is actually building globally. Technology, investment, policy and public engagement have turned a corner, and emissions reductions will follow if we continue to do two things: slow down processes that emit and speed up ones that don’t. It’s a pretty straightforward concept. If we add to that the efforts and finance needed to increase our resilience in the face of the amount of climate change that is already inevitable, then we have the main aspects covered.

In the UNFCCC, the language of commitments for such a package will of course be couched in its own abstruse form of performance art. There are elements of an international deal long under discussion that sound promising – like ‘technology transfer,’ which is one of many cul-de-sacs from which nothing ever emerges. But fortunately when looking at the draft negotiating documents coming out of the important ‘ADP’ sessions (The Ad Hoc Working Group on the Durban Platform for Enhanced Action, for heaven’s sake), most of the ingredients for a more inclusive, more flexible, and yet still equitable agreement with real commitments, are on (or at least hovering near) the table.

A good litmus test for the agreement in Europe will be whether it accommodates – or even facilitates – clearing up some currently perverse situations. Consider that the EU will blow past its 2020 target but is unwilling to commit to this in the UN. It has tabled 2030 obligations that is knows represents a slow-down in action over the previous decade, but feels compelled to paint it as a glorious achievement to avoid upsetting the perceived balance of international burden sharing. The UNFCCC needs to provide opportunities for countries to aim high, and keep ratcheting the level of efforts to help stay below 2 degrees. It should hold their feet to the fire in light of the urgent need for emissions reductions, and work towards a better recognition of the positive actions Parties can take individually and collectively.

While the reality of climate change is becoming dire, avoiding the worst of it is a challenge we will rise to only by creating a positive spirit of change and opportunity. I’m certainly hoping that staring at the ceiling two days before the start of the COP isn’t the most uplifting moment of the fortnight!

 

Low oil and fossil fuel prices are a climate poison

Posted by on 03/12/14
By Eberhard Rhein Low oil price do not fit into a global climate situation that calls for high carbon prices to reduce the consumption of fossil fuels. EU countries should lose no time in responding to the oil bonanza.

Is South Stream Pipeline Transforming Itself To “Turk Stream”?

Posted by on 03/12/14

We believe that in the current conditions Russia cannot continue with the realisation of this project [South Stream].” (Vladimir Putin)

russia vs euRussia’s $40 billion South Stream gas pipeline project came to reach a standstill on Monday 1st Dec 2014 when, as the WSJ reports, Russian President Vladimir Putin said: “We couldn’t get necessary permissions from Bulgaria, so we cannot continue with the project. We can’t make all the investment just to be stopped at the Bulgarian border.

The main reasons for halting the South Stream are plunging energy prices, stalling European demand, interpretation of the European Commission that all bilateral agreements (IGAs) for the construction of South Stream are all in breach of EU law and mostly the political standoff between the European Union and Moscow over the crisis in Ukraine.

The announcement on scrapping South Stream came during a visit by Russian President Vladimir Putin and Gazprom chief executive, Alexei Miller, to Turkey, during which Putin proposed building it to Turkey instead, offering its gas at a discount.

South Stream

South Stream is a Russian sponsored natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia’s Gazprom in the South Stream project is Italy’s largest energy company, ENI.

Russia signed intergovernmental agreements with:

  • Bulgaria – January 18, 2008;
  • Serbia – January 25, 2008;
  • Hungary – February 28, 2008;
  • Greece – April 29, 2008;
  • Slovenia – November 14, 2009;
  • Croatia – March 2, 2010;
  • Austria – April 24, 2010.

The construction of South Stream started on December 7, 2012 is scheduled to be completed by 2015. The offshore section of the pipeline, which will run in part along the seabed and reach the maximum depth of 2,200 m, will be 931 km long. Each of the four parallel strings of the pipeline will consist of 75,000 pipes, each 12 m long, 81 cm in diameter, 39 mm thick and weighing 9 tonnes.

South Stream and partners South Stream and partners

Last December (2013), the European Commission said that all bilateral agreements (IGAs) for the construction of South Stream are all in breach of EU law and need to be renegotiated from scratch (Source: Euractiv ).

Field status” as solution

The European Commission threatened to launch legal action on grounds that South Stream violates EU anti-monopoly laws, with Bulgaria halting construction in August 2014. There are two main requirements for the eligibility of major new gas infrastructure projects like South Stream to be developed in the EU in compliance with the European Commission Directive 2009/73/EC concerning common rules for the internal market in natural gas. The first one relates to the unbundling between the suppliers and the owners of infrastructure, while the second one relates to the granting of third party access to the transmission and distribution systems. This is a formality – the real cause to block South Stream from EU side is of course political confrontation due Ukraine.

Bulgaria and Russia have been discussing the possibility of reclassifying the Bulgarian section of the South Stream gas pipeline into a field pipe to exempt it from EU restrictions. Indeed “the field status” could solve all the problems on restrictions related to the EU third energy package.

In the case of the South Stream Russia’s Gazprom cannot be engaged in production, transportation, and sales of natural gas at the same time. But the pipes carrying gas from EU’s sea shelf fields have a special field status, which exempts them from the restrictions of the legislation.Under EU legislation, pipelines carrying gas from the sea shelf wells of EU countries, particularly Germany, France and Belgium, have a ‘field pipeline’ status that exempts them from the requirement for mandatory granting of access of third parties to the pipeline.Austria’s OMV, Gazprom’s partner in the Austrian section of South Stream, produces gas on the Bulgarian Black Sea shelf, and a pipeline built by OMV to carry gas from the shelf can be later included in the project by reassignment of rights. (Source and more at Novinite: Bulgaria, Russia Discuss Exempting South Stream from EU Restrictions )

Consequences

The main loser of possible cancellation of South Stream project will be Bulgaria. The direct budget revenues that Bulgaria would have had from [gas] transit were at least €400 million a year. The share in the country’s €40 billion GDP to come from South Stream was expected to be 1.5 percent, according to Bulgarian Economic Ministry. Direct investment was supposed to be around €3 billion creating around 2,500 new jobs. The Northern parts of the country, through which the main pipeline route would be laid, were expected to have significantly improved social infrastructure and become more attractive to investment.

Besides Bulgaria also Serbia, Austria and Italy would have made big time revenue, and employed lots of people in need of jobs, by being links in the South Stream chain. Now they will have to pay the Turk Stream toll booth to secure their energy needs.

For Serbia it [South Stream] has been the cornerstone of our industrial strategy for the next 10 years so the situation is worrying us,” Vuk Jeremic, former foreign minister of Serbia, told New Europe on the sidelines of the Athens Forum 2014 on September 15. Right now the bets are off. But I’m hopeful that there will be progress in the future. But it would have to be part of a wider development of normalisation of relations between Russia and the West which currently does not seem to be in the making,” he said. Reminding that Gazprom is one of the biggest foreign investors in Serbia, Jeremic stressed that such a project would be of immense importance for his country’s economy so there are reasons for Belgrade to be worried.”

In addition with Turk Stream a reality, Ukraine has lost its strategic energy significance. The project operator South Stream Transport estimates that European companies will lose at least 2.5 billion euros because of the abandoned project. Japanese companies who were participating in the project will lose some 320 million euros – a Japanese consortium made up of Marubeni-Itochu and Sumitomo had received a pipe supply order worth that amount. (Source: Russia Beyond the Headlines )

If Gazprom decides to choose Turkey and Greece for the South Stream route, the pipeline project would largely resemble the TANAP-TAP project to bring Azeri gas to Italy through the territories of the same countries. The Trans-Anatolian gas pipeline (TANAP) is a proposed natural gas pipeline from Azerbaijan running through Turkey. The approximately 870 km long TAP pipeline connects with TANAP, and will cross Greece and Albania before reaching Italy through an offshore section. It is to be built by a consortium led by BP, Norway’s Statoil and Azerbaijan’s SOCAR. TAP is in an advanced stage of preparation and the start of its construction is planned in 2016.

Gazprom had spent 487.5 billion rubles ($9.4 billion) in the last three years on South Stream and upgrading the Russian pipelines that would have supplied it. Some of that work can be used for a separate link to Turkey. Supply contracts and intergovernmental agreements surrounding the project remain in force. The infrastructure built in preparation for South Stream will be used for “Turk Stream”.

“Turk Stream” instead?

Related to implementation of South Stream Russia agreed on 6th August 2009 with Turkey about energy cooperation with South Stream and also development of Blue Stream pipeline between Russia and Turkey under Black Sea so South Stream has secured also an alternative route. While EU started to create obstacles to project and in case Bulgaria continues to obstruct the construction of the South Stream pipeline this cooperation made base for Gazprom’s “Plan B”. Also on 24 May 2014 Russian President Vladimir Putin already hinted at another route for South Stream, during his meeting with leaders of world media.

Ankara would allow South Stream to reach Turkey under the Black Sea instead of Bulgaria, as originally planned. Russia would prefer not to opt for a plan B, but if the Commission doesn’t stop pressuring Bulgaria to freeze the construction of the pipeline, this alternative appears to be a viable option.

While announcing about South Stream hold off the Russian leader said he will add an extra branch to his existing Blue Stream gas pipeline to Turkey and build a new storage and trading “hub” on the Turkish-Greek border. The pipeline will have an annual capacity of 63 billion cubic meters. A total of 14 bcm will be delivered to Turkey, which is Gazprom’s second biggest customer in the region after Germany. The rest can be shipped through Turkey’s pipeline network to the Balkans.

On the left, the planned South Stream route, to the right, the Blue Stream pipeline to Turkey. Image from www.gazprom.com On the left, the planned South Stream route, to the right, the Blue Stream pipeline to Turkey. Image from www.gazprom.com

Russia’s energy minister Aleksandr Novak said that the new project will include a specially-constructed hub on the Turkish-Greek border for customers in southern Europe. Novak later confirmed that Vladimir Putin personally ordered for the South Stream project to be mothballed, and its existing facilities to be repurposed for the new Turkish pipeline. (Source: RT )

The clear winner of new plans is Turkey – the in-between partner and energy hub – who will take gas from Iran and Russia to Europe. In addition Russia and Turkey also noted that plans for Russian firm Rosatom to build a $20 billion nuclear power plant in Turkey are proceeding full speed ahead.

The bottom line

South Stream exposed cracks in EU strategy as Hungary, Austria, Serbia and Bulgaria among others saw it as a solution to the risk of supply disruptions via Ukraine, which have occurred three times during the last decade. Brussels, on the other hand, saw it as entrenching Moscow’s energy stranglehold on Europe. It remains to see whether Russia’s decision was final or a political ploy – a tactical step – to gain more favorable terms for South Stream.

From my point of view the original South Stream is the better alternative than “Turk Stream” as it is the direct option to EU/Europe and avoid a transit risk related to Ukraine or Turkey so in my opinion the best follow-up would be attempt to solve Russia-EU differences and run pipeline directly to Europe as initially planned.

P.S:

Turkey, the country that bridges Europe with Asia is merely the latest expansion of Putin’s anti-dollar alliance as Turkey and Russia agree to use local currencies in trade. Wider perspective about this issue can be read from my article ¥uan and Waterloo of Petro$

OPEC decision – what’s next?

Posted by on 01/12/14

The London petroleum exchange saw the price of Brent crude slide to just under USD 70 per barrel today. What is more, after last week’s decision by OPEC, there is no indication that the downward trend will reverse any time soon. Oil prices are at their lowest since 2008. Although I explained the reasons behind the trend in a previous entry (http://napedzamyprzyszlosc.pl/en/blog/uncertain-times), the matter generates so much interest that I have decided to supply a brief commentary (organised in bullet points) on the situation in the oil market in the wake of OPEC’s decision.

1)     Ample oil supply has overtaken demand. The price is bound to fall and adjust to the new conditions.

2)     There are two reasons for the increased supply of crude.

a)     The first reason, US tight oil, is certain. Since 2008, the amount of crude oil supplied from this source has risen by more than 3.6 million barrels a day, offsetting the decline in supply seen in the MENA countries (some 4 million barrels a day within the same time period). Were it not for tight oil, the price of crude would be much higher. It should be noted that this is not only about production increase (currently at about 1 million barrels a day), but also about room for growth (oil producers scattered across the U.S. are highly sensitive to prices – when these approach their production costs, which may vary greatly from basin to basin, they cut back on drilling).

b)    The second reason is an unexpected one. Oil production in Libya, where two factions are now fighting for power, has suddenly risen to above 900,000 barrels a day, while the expected figure was no more than 400,000 barrels. The supply spike accounted for half of the expected global crude oil demand increase (1.1 million barrels a day).

c)     Oil sourced from Iran (still burdened by sanctions), Iraq (production growing) and South America, which are all members of OPEC, is expected to enter the market soon.

3)     The increase in supply coincides with a global economic downturn, with China’s slowing economy being a major contributing factor. As a consequence, demand for crude is shrinking. The IEA has recently cut its oil demand growth forecasts for 2014 and 2015 by 200,000 to 300,000 barrels a day.

4)     All these factors contribute to the decline in crude oil prices. Will the downtrend continue? And how deep could it be?

a)     The situation in Libya and Iraq remains volatile, talks with Iran are not going as planned, while Russia is up against the wall. This may result in a sudden, actual or threatened, withdrawal of several hundred thousand barrels of oil a day from the market. Should this happen, the price of oil is likely to go up. The markets are keeping a close watch.

b)    For the time being, however, the price continues its downward march, straining the production cost barrier.

c)     Just as we predicted, OPEC did not cut production because:

i)      It is difficult to reconcile the interests of those countries which have lost their place on the market and are now making a quick comeback with the interests of those for whom high oil prices are what they want.

ii)     If OPEC had cut production, the price of crude oil would have gone up, driving oil production in the U.S. up and increasing pressure to lower prices. The move to limit production would benefit American oil companies.

iii)    As some expected OPEC to trim prices, when it eventually decided not to do so, the price dropped and is now trying to find a production cost floor (not only in the U.S., but all eyes are on the U.S.).

d)    How far can the price fall? It is difficult to say, because there are financial players on the market, who, naturally, look at the fundamentals, but react excessively and amplify their effect. This means that in the near term (one, two or three months, maybe two quarters), we may see some really low crude oil prices. As low prices put a damper on oil production in the U.S., the price will rebound on reduced output. From what floor, it is hard to predict.

e)     What is important is that low oil prices, even at the levels we are seeing today, will have an effect on crude supply in the years to come. With upstream investment curbed, supply will shrink more than what is expected today, putting upward pressure on oil prices (long-term, rather than short-term, as upstream investments take years before yielding results).

5)     What about fuel prices? Sudden changes in crude oil prices do not immediately feed through into fuel prices for several reasons – their duration is uncertain, past price levels are more important (i.e. whether a decline is a correction after a period of growth or a continuation of a downward trend). The first effect of the current price declines will be an increase in refining margins, which will quickly improve production profitability – fuel production will go up, higher capacity utilisation in refineries will bring down unit costs, opening way to increased production and, consequently, lower fuel prices. But how low can they get? It is difficult to say, but in all likelihood refiners will be fighting for their share in the market, which will drive market prices down. The wholesale and retail prices will follow.

6)      Lower crude oil prices translate into lower energy costs, stoking consumer demand and boosting disposable incomes left after all energy bills have been paid. While lower prices will promote growth in oil- and fuel-importing countries, they will have an opposite effect on oil exporters − oil-rich countries often subsidise the cost of fuel, which means that lower oil prices have weak or no transmission in the market, but at the same time cause budget revenues and spending to shrink

 

 

Passive Houses for dummies

Posted by on 29/11/14

For many years now, since 2003, the second weekend of November hosts the International Passive House Days: Passive House owners and residents around the globe open their Passive House homes and offices and share their experiences, showing what this “Passive House” idea/concept is all about.

Hungary joined this initiative in 2009, when the Hungarian Passive House Association (MAPASZ) became responsible for a local program. In 2012 the Association of Hungarian Passive House Architects (PAOSZ) followed this lead and offered its own, separate set of programmes which resulted in an even more adequate coverage of these innovative and energy efficient buildings here in Hungary.

To complete the picture, an EU-funded project dedicated to the topic of nearly zero energy buildings (Nearly Zero Energy Buildings Open Doors Days) also organised building visits this year which partly overlapped with the other two tours (organised by MAPASZ and PAOSZ), but ensured the mobilisation of further interested parties to engage with this global event.

This year Geonardo – within the frame of its AIDA project – joined forces with MAPASZ in order to reach out to and mobilise an ever increasing number of people who are genuinely interested in the concept of Passive Houses and the related advanced building engineering technologies. Similarly to previous years’ experience, only a small fraction of the participants had an architect or similar building industry-related background: the majority of them were only open to the concept and wanted to learn more about the featuring success stories, or wanted to gather some operational experience before they engage into their own passive building project.

The first day covered a wide array of innovative buildings from Western Hungary featuring a few private homes, a school, a dental clinic and an apartment building, demonstrating that not only regular houses can be considered when developing such a project but essentially any type of building can achieve this cutting-edge energy standard. Despite their versatility, the buildings on display had a few basic features in common which are absolutely essential when it comes to a nearly zero energy building (nZEB) or passive house. The most important of them are air-tightness and thermal insulation.

It is easy to understand that if you want to have an energy efficient real-estate you can’t afford wasting energy on heating or cooling the outside environment as a result of a “leaking” building envelope. This is especially true if you have a renewable-based low-temperature heating system planned/installed with an output just sufficient (with little reserve) if the building meets certain energy standards but which might prove inadequate if the structure fails to comply with those initially planned figures. The blower-door test is a common tool to measure the air-tightness of buildings: “Blower door tests are used to assess the construction quality of the building envelope, locate air leakage pathways, assess how much ventilation is supplied by the air leakage, assess the energy losses resulting from that air leakage and to determine if the building needs mechanical ventilation.” (source: Wikipedia).

The test is highly recommended when there is still some room to fix the potential problems at a relatively low cost (half-ready status), rather than wait until the building is finished, only to engage into costly repair works aiming to bring the house up to the planned standards.

One of the main highlights of the first day came when the owners described their reactions when the blower door test concluded its findings on the given building.

Some of them were relieved that the construction crew did its job properly securing the air-tightness of the property while others were quite disappointed by the results. Since the Passive House technologies and standards are relatively new there aren’t many contractors prepared enough to tackle the challenges such a job requires.

We were told that most of the tasks which make the difference between good and poor results (an additional layer of sealing around the windows, a bit more filling around the cables entering the structure etc) require no special knowledge or ability to perform them, rather patience, a bit of time and devotion. The latter of which is usually lacked by the crews responsible for the job. The general consensus was that you have to do these tedious bits for yourself if you want them properly done or you might face costly consequences to get them fixed.

It’s a cliché that thermal insulation is a key factor when it comes to energy efficiency of buildings, and in case of nearly zero energy buildings or passive houses it gets even more important.

There is a relatively wide range of building materials that are suitable for such buildings, but their inherent thermal properties alone wouldn’t make them fit for the purpose without additional layers of thermal insulation applied over them either from the inside or the outside. On our tour we came across various structures built of regular, hollow, fired clay-bricks, sandlime bricks or even cast-concrete, demonstrating that personal preferences can be taken into consideration when building an energy efficient structure and that there is more than one way to skin the cat.

For instance, the owner of the concrete building said that his home was erected in just under 2 months. Insulated concrete form (ICF) is a system of formwork for reinforced concrete usually made with a rigid thermal insulation that stays in place as a permanent interior and exterior substrate for walls, floors, and roofs. The forms are interlocking modular units that are dry-stacked (without mortar) and filled with concrete. The units lock together somewhat like Lego bricks and create a form for the structural walls or floors of a building. Because of the uniform wall structure there is no surprise that this house’s blower door test results were by far the best among the ones visited. But in my personal opinion I wouldn’t want to voluntarily live in a reinforced-concrete-walled house even though its energy performance, speed of delivery and visual appearance makes it a quite appealing option. The rest of the programme buildings followed a more traditional wall structure using different types of bricks with various thickness of insulation covering them.

In general it can be said that the main difference between a passive house and a regular home lies in the thickness of the insulating layer and in the quality of finishing.

When it comes to passive houses or highly energy efficient buildings a common concern is usually raised about not-to-be-opened windows. It makes sense to rely on the mechanical ventilation, and not to use the windows for uncontrolled ventilation once you spent so much on making your structure air-tight and thermally insulated. All of the buildings in our programme were equipped with such a system; thanks to their sophisticated ability to heat the fresh air from the outside using the heat of the used air from the inside, they minimised the amount of energy needed to maintain comfortable indoor temperatures and moisture levels. Hence we were told that in case guests are over, they might end up overheating the house simply through the overall body heat, so the fans need to be turned higher to cope with the increased demand.

 

It is quite fascinating to see that adequate air tightness and thermal insulation may render regular heating options obsolete or even futile. Some of the visited buildings had been equipped either by radiators or floor heating, but only as a backup, since 99% of the time ducted-air heating meets the needs.

Of course passive house owners may also use their windows in a traditional way (unless they choose fixed windows), but they usually do so when the temperature difference is minimal between the inside and the outside (Spring, Autumn etc). In all other cases they have uninterrupted access to fresh pre-heated or pre-cooled and moisture-controlled air via their heat-recovering ventilation system and they do not have to waste the energy they used to heat or cool the air inside when opening the window for fresh air. Nowadays many manufacturers offer amazingly compact devices which could even fit in your kitchen cupboard and take care of all building engineering tasks (heating, cooling, ventilation, DHW) in a single unit, though such a sophisticated piece of engineering comes with a hefty price tag.

Some owners prefer these types of solutions, though the more complex the design, the more specialised maintenance has to be done in case something goes wrong. We have seen a few buildings where the owners were pursuing to keep the building engineering system as basic and easy-to-repair as possible. A young couple for instance after having an air-tight and thermally insulated structure with a simple heat recovering ventilation in place, added only electric heating films to cover for their additional heating needs, if necessary using their solar PV produced energy. It is a plain, simple, cheap and easy-to-maintain solution.

Though the number of newly built and retrofitted passive houses and nearly zero energy buildings are getting more and more numerous, year by year the total number of such buildings is still in the range of a few hundred at tops, compared to the 4.2 million homes in Hungary. On one hand it is delightful to see this tendency in Hungary, but on the other hand these innovative structures can only be considered as the few exceptions to the general rule so far. A rule which still represents the traditional way of building a home using outdated approaches, concepts and materials. As long as this is the prevailing rule, such buildings will remain a minority and no bigger scale building energy targets can be met effectively.

Gambling on China’s Energy Revolution

Posted by on 27/11/14

The joint announcement signed by presidents Xi Jinping and Barack Obama at the Asia-Pacific Cooperation (APEC) summit in Beijing brought climate change back to the international headlines. The document set targets for both sides to achieve and was welcomed or damned in equal measure.

Although the announcement binds neither side, it was seen by many politicians and observers as a step forward. Two key global powers, the largest CO2 emitters, had come to an agreement on climate change. China had for the first time committed itself in an international agreement to targets. In the announcement. China stated that it, “intends to achieve the peaking of CO2 emissions around 2030 and to make best efforts to peak early and intends to increase the share of non-fossil fuels in primary energy consumption to around 20% by 2030”.

But the critics and sceptics have been many, especially of the targets China has set. One criticism had been that the emissions target is too loose, and allows China to continue emitting CO2 without constraint until 2030. Another, focusing on the non-fossil fuel target, has been that it is too easy, in fact setting out no more than what China plans to do anyway.

The announcement made the point, emphasized by President Obama, that meeting the target would require China to install 800 to 1000 GW of zero-emissions energy generating capacity by 2030, which is greater than the current coal-fired generating capacity in China. One man at least, the Australian Prime Minister Tony Abbott, who believes in the future of coal, was happy with the apparent weakness of the target on the grounds that according to him it meant that by 2030 80% of China’s energy would still come from coal. His government predicts that since China will still need to import large quantities of Australia’s coal its economic future is thus assured.

The EU has been pretty much on the sidelines in all of this, but it too has a stake in China’s commitments. The stake is not just political concern over global policy on climate change. Like others, the EU has an interest in the future direction of the Chinese economy. The EU does not have much coal of offer, but it does have environmental and energy technology and know-how that would find a market in a China committed to reducing energy use and emissions.

Predicting China’s future energy demand and emissions is difficult. The variables to be taken into account lead to huge differences in possible outcomes. But one of the most important elements in China will be government policy and its targets. In China this gives some idea of whether it will meet its commitments in the announcement, at least the 20% non-fossil fuels target for 2020.

In 2013 China’s primary energy production (in Standard Coal Equivalent (SCE), the measure used in China) was 75.6% coal, 8.9% oil, 4.6% natural gas, and 10.9% hydro, nuclear and wind. In this mix, coal has recently declined slightly, oil has also declined, while natural gas and non-fossil fuels have been rising. But primary energy consumption shows a different picture. Primary energy consumption in 2013 was 66% coal, 18.4% oil, 5.8% natural gas and 9.8% hydro, nuclear and wind. Coal has clearly declined from a recent peak of 71.1% a few years ago, oil has remained more or less at the same level for several years, while natural gas and non-fossil fuels have increased their share. The difference between primary energy production and consumption is accounted for by imports and exports. China imports most of its oil and increasing amounts of natural gas. In recent years, despite huge domestic production, it has also imported significant amounts of coal.

Table 1: China Share of Primary Energy Production Source: National Bureau of Statistics

 

Table 2: China Share of Primary Energy Consumption Source: National Bureau of Statistics

As these figures show, Tony Abbott’s belief that in 2030 80% of China’s energy will still come from coal is already wrong. He appears to suffer from two possible confusions. While it is true that currently close of 80% of primary energy production is coal this is not the case for consumption, which is what the announcement refers to. Abbott’s other possible error is a belief that even if China meets the target that 20% of energy consumption will come from non-fossil energy in 2020, then the remainder must come from coal.

Will China meet the target? Earlier this year Xi Jinping spoke of the need for a revolution in China’s energy production and consumption. At the time, he referred only to broad principles. The State Council has issued a Strategic Action Plan for Energy Development (2014-2020) which gives some detail on how this revolution will be achieved. The plan sets some targets. Non-fossil fuels are targeted to reach 15% of energy consumption by 2020, natural gas more than 10% and coal less than 62%. Although it is not specified, this leaves about 13% for oil.

The plan also calls for an installed capacity of over 200 GW of wind power in 2020, over 100 GW of solar photovoltaic (PV), 350 GW of normal hydro power and 58 GW of nuclear, with a further 30 GW of nuclear to be under construction. By comparison, at the end of 2013 China had 91.4 GW of grid-connected wind capacity and 19.4 GW of grid-connected solar PV capacity. The goals are reachable. In 2013 added 12.9 GW of solar PV and 16.1 GW of wind capacity, both the largest in the world. It also added 29.9 GW of hydro capacity.

Is not clear whether these targets will be the final word for the 13th Five Year Plan (FYP) which will cover a key period from 2016 to 2020. In recent years targets for renewables have been repeatedly raised as previous ones have been exceeded. One recent article in the Chinese media quoted an official from the planning department of the National Energy Agency (NEA) discussing the 13th FYP as saying the target for 2020 would be for coal to account for less than 60% of primary energy consumption, and he also said that the target for 2030 would be less than 50%.

On the current trend, the target for coal to account for under 62% of energy consumption by 2020 seems feasible. If the target of 15% for non-fossil fuels by 2020 is achieved, which on today’s rates of installation it probably will be, then another 5% in the following decade will not be difficult. One of the reasons why the target will be “easy” is not because it is low, but because China already is the largest investor in renewables in the world. Even if China merely continues renewable energy installations at the current rates over the next 16 years it will reach the added capacity the announcement says is required in the range of 800 to 1000 GW by 2030 with some to spare.

There are many uncertainties in all of these outcomes. President Obama has taken a political gamble on China’s energy revolution, while Tony Abbott is betting against it without apparently really understanding the odds. From a European perspective, a bet on rather than against China’s energy revolution seems wiser.

What EU funded low-carbon energy solutions in Polish regions?

Posted by on 24/11/14

The low-carbon energy ambitions of Polish regions for future EU funding are very diverse with only a few promising cases as an analysis of the Operational Programmes of Polish regions shows.

by Julia Krzyszkowska, cross-posted from the Bankwatch blog

Poland is currently in the final stages of planning how European funds under EU Cohesion Policy for 2014-2020 will be invested. Yet, beyond the national level, also Poland’s 16 regions (voivodeships) are about to conclude negotiations with the European Commission about the final shape of the Regional Operational Programmes (ROPs).

The results will show whether Poland’s regions are on the path to take full advantage of the potential of EU funds’ for the country’s sustainable development – a potential that is not to be underestimated. More than half of the EUR 9 billion that are earmarked for the low-carbon economy in Poland will be allocated and managed by the regional authorities. (For comparison, the total allocations of Cohesion Policy 2014-2020 for Bulgaria is EUR 7.59 billion, for Croatia EUR 8.61 billion.)

Bankwatch and Polish Green Network analysed the final drafts of the ROPs as they were presented to the European Commission. The analysis shows how ambitious (or not) the Polish regions are to invest in a low-carbon economy, in particularly when it comes to renewable energy and energy efficiency in residential buildings.

Report: Recommendations for the last state of programming of EU Regional Funds 2014-2020 for energy projects (pdf)

An important indicator is whether ordinary Polish households will be able to benefit from EU funds, for example through lower energy bills and greater security of energy supply. For smaller, localised investments, such as improving the energy standard in residential buildings or the production of citizen-owned energy from small renewables installations, the decisions made by the regional authorities will be essential.


Map: Allocation of funds for the thematic objective 4 on low-carbon economy as percentage of the total allocation of the European Regional Development Fund (ERDF) – Click image for full size

As the map above shows the level of ambition shown by Polish regions varies significantly.

While Śląskie in the South of Poland plans to spend almost 30 per cent of its European Regional Development Plan funds for low-carbon economy measures, there are many regions who keep the allocations close to the minimum 15 per cent, prescribed by the Polish Partnership Agreement.

While indicating the overall importance placed on the low-carbon economy objective by different regions, the map does not show their spending priorities within this area.

Energy efficiency in residential buildings

Going into more detail, one of the key elements we evaluated [1] was the availability of funding for energy efficiency in housing. The residential housing sector in Poland consumes over 30 per cent of all energy used in the country. The generally very poor energy standard of buildings resembles that of the 1970s in Western Europe and means a huge waste of energy and heat.

These losses could be avoided thanks to investments in deep retrofitting, estimated to result in up to 70 per cent energy savings.

Graph: Funds for energy retrofit of residential buildings (in euros and as a percentage of all ERDF funds in a region)

Looking at the Regional Operational Programmes, the allocations for improving energy efficiency in residential buildings are alarmingly low in relation to the entire amount of funds intended to support a low-carbon economy, and even more so in relation to the total ERDF allocation in a given region (see graph).

According to our analysis, the public sector seems to have priority in the regional spending plans with more than twice as much funds allocated to improving energy efficiency in state and municipality-owned buildings than in residential houses.

Yet, it is especially in residential buildings where energy efficiency measures should get priority funding given that such investments are more difficult to undertake for private households who — in contrast to public institutions — do not have sufficient financial resources or access to subsidies and preferential loans.

Investments in retrofitting multifamily houses could significantly alleviate the financial burden faced by many Polish families and improve their quality of life. Research by the Polish Institute for Sustainable Development and the Warsaw Institute for Economic Studies shows that Polish households spend on average around 15 per cent of their disposable incomes on energy bills. According to another research paper (pdf) on energy poverty in the EU, more than 20 per cent are unable to afford comfortable temperature levels at home during the winter.

What’s next?

Once negotiations with the European Commission are finalised, it will be up to the regions themselves to prepare the more detailed implementation documents that outline exactly who will be able to apply for funding from the EU budget, for what kind of project and on what terms.

Our report “Green Energy for All: Six recommendations for the last stage of programming of EU regional funds 2014-2020 for energy projects” contains some key demands for the last, crucial stage of the EU funds programming, and recommendations on how to make them reality.

These recommendations regard:

  • allowing for deep retrofitting of residential buildings,
  • supporting RES microinstallations and prosumer energy,
  • investing in renewables to improve air quality in Polish cities,
  • financing environmental education and information campaigns,
  • ensuring high biodiversity protection standards in energy-related projects,
  • providing support for community energy and partnerships.

We call on Polish voivodeships to show ambition, go for quality and to invest rather than just spend.


Notes

1. The other elements are prosumer renewable energy, air quality, environmental education, biodiversity protection and communities and partnerships in the energy sector.

Ukraine will scrap gas subsidies

Posted by on 24/11/14

For many years Ukraine has wasted huge amounts of energy through exorbitant subsidies on gas consumption, coupled with in-transparent multiple gas prices and large-scale corruption. Due to these factors, Ukraine has become one of the most wasteful energy consuming countries in the world. With household gas prices substantially lower than in any other European country and lower than the wholesale purchase prices, this regime had long become unsustainable.

Under the new political leadership it will finally disappear. There will be a single wholesale gas price which will cover the supply costs and yield a decent profit for the state-owned gas company. The IMF and the EU had conditioned their financial assistance to a profound reform of the Ukrainian gas market.

Gas prices will have to more than double, which cannot happen overnight. This huge rise of prices will induce consumers to a much more economic use of gas and higher energy efficiency. By the same token it will dampen the social impact of the price rise.

The future generated profits will be used to financing improvements of the gas distribution, improving energy efficiency and offering specific assistance to vulnerable groups of society.

This will be a revolution for Ukraine and other the countries still indulging in the luxury of fossil subsidies. It will not be easy to “sell” politically. But Ukrainians, having shown they can be tough, are likely to accept a higher gas price in exchange for security of supply.

If the anticipated increase of energy efficiency happens in the wake of the phasing out of subsidies Ukraine might become an example for other developing and emerging countries to be followed.

Eberhard Rhein, Brussels, 20/11/2014

EBRD sticks to ‘business as usual’ in Ukraine

Posted by on 23/11/14
By Iryna Holovko, Bankwatch The need to reform the Ukrainian energy sector is eminent, and yet, some European donors - like the EBRD - continue with business as usual, which does not address the country’s immediate need for improved energy security.

New G20 ‘commitments’ on phasing out fossil fuel subsidies are worthless

Posted by on 20/11/14
By Eberhard Rhein In 2009, heads of government agreed to phase out fossil fuels subsidies by 2020. This month, leaders at the G20 in Brisbane repeated the aim but scrapped the deadline. Is the G20 the 'loosest governing bodies' on earth?

Climate policy’s instrument is more important than its numeric target

Posted by on 16/11/14

Last Thursday, I took part in the Energy Conference in Ústí nad Labem in the Czech Republic. During the debate, the panel discussion moderator asked me why Poland contested the EU climate policy for such a long time only to agree to the elevated emission reduction target. My answer was that I believed that it was not us who had changed, but the European Union, which had seen its mistakes and decided to step back (for more, see: http://napedzamyprzyszlosc.pl/en/blog/eu-s-controversial-climate-policy). Naturally, this will not be a simple task, and success is far from certain, because we have created some strong lobbying groups in the EU, which will not give ground easily. What is good, however, is that we now have a single EU-wide emission reduction target – to cut emissions by 40% below 1990 levels, and a single instrument – the price of emission allowances. I have explained on numerous occasions before, also on this blog, why having multiple objectives is harmful. Under the European Commission’s current proposed framework, the additional targets (27% share of RES in the Energy Union’s overall energy consumption and an energy consumption reduction target of 30%) are not binding.

In the climate policy debate, it is the targets that elicit the strongest emotions. This is probably because those taking part in the discussion take it for granted that the target and the instrument share a strong causal relationship, which they do in the models used to evaluate the economic impact of the climate policy. These models obviously abstract from unpredictable events, including not only recessions and economic crises, but also positive developments, such as the emergence of innovative technologies which alter the pricing balance of energy sources, while the fact of the matter is that reality is teeming with unforeseen circumstances. In effect, such forecasts only manage to approximate actual events, or miss them completely. This holds especially true for long-term projections, such as those used to plan out climate policies. When validating such models against reality, the emission reduction target to be achieved in 20 years is as credible as the projection’s verifiability over the 20-year horizon. What really counts is the instrument, which determines the policy’s effectiveness and cost for the taxpayer.

Theoretically tied only to the target value, the instrument of the EU climate policy – the price of emission allowances – has been designed to react to all favourable and unfavourable developments along the way, which causes the result to be opposite of what was intended. The price of emission allowances drops close to zero in reaction to any unforeseen emission reductions in the wake of a deep recession and the meagre economic recovery that follows. In the end, the policy provokes confusion and discourages investment rather than urges companies on in the right direction. In business terms, it is an increased regulatory risk. Let’s then not be afraid of ambitious climatic targets, as they pose no threat. What is dangerous, however, are the ill-considered instruments employed to achieve such goals, which needlessly add to the already high uncertainty associated with the extremely long-term character of the climate policy.If we were able to introduce an instrument immune to the unpredictable which would be able to differentiate energy prices depending on emission levels, we would set a new direction for businesses to invest in, as well as for developing new technologies. The climate policy would gain credibility. Businesses would choose the cheapest available emission reduction technologies and join forces with scientists in search of new ones. What about reducing emissions? How much of the target would be achieved in 2030 and 2050 would depend on any disruptions that happen along the way and affect economic growth in that time horizon. If we grow faster, emissions will increase. Slower growth, on the other hand, will mean less emissions. Still, irrespective of how the economic situation develops and whatever new technologies emerge, we will be successful in creating a low-carbon economy at a much lower cost. The good news is that such an instrument already exists. Can you guess what it is?

 

¥uan and Waterloo of Petro$ (Part 2/2)

Posted by on 11/11/14

yuan logoU.S. sanctions due the conflict in Ukraine launched Russia’s counter-offensive with bypassing the U.S. dollar system as its spear-head. My previous article ¥uan and Waterloo of Petro$(Part ½) describes this monetary war. The gas contract, signed between Russia and China in May 2014, and a new wave of the EU sanctions in September 2014 are paving the road towards the revival of traditional (neo)realist balance of power.

Besides monetary war the emergencing cooperation on different pro-Russian fields and energy policy are linked to ongoing geopolitical turmoil.The wider picture includes the Sino-Russian cooperation, the BRICS, the SCO, the EEU, the energy war and other bilateral operations.

 

The Sino-Russian cooperation

The Russia-China strategic partnership will keep evolving very fast – with Beijing in symbiosis with Moscow’s immense natural and military-technological resources. Not to mention the strategic benefits. Faced with an increasingly hostile West, Russia is visibly turning East. In particular, China and Russia have become closer, signing a historic gas deal, conducting joint naval exercises, and increasing trade.

Gazprom signed a thirty-year gas contract worth $400 billion. The deal’s importance can be compared with a similar accord concluded in the 1960s that brought Russian gas to West Germany for the first time. Moscow and Beijing vow to more than double their bilateral trade to $200 billion by 2020, that is, roughly half of their current turnover with the EU.

It is clear that Moscow seeks an acceleration of its business ties with China. On Nov. 09, 2014 President Vladimir Putin and Chinese leader Xi Jinping signed a memorandum of understanding on the so-called “western” gas supplies route to China. Russia’s so-called “western” or “Altay” route would supply 30 billion cubic meters (bcm) of gas a year to China. The new supply line comes in addition to the “eastern” route, through the “Power of Siberia” pipeline, which will annually deliver 38 bcm of gas to China. Work on that pipeline route has already begun after a $400 billion deal was clinched in May. Among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. (Source: RT )

China-Russia gas deal

In addition China and Russia have agreed to jointly build a seaport on the coast of the sea of Japan, which are projected to become one of the largest on the coast in North-East Asia. The facility will be located in our territory and will serve up to 60 million tons of cargo per year.

Also, China has decided to invest 400 billion rubles in the construction of high-speed highway Moscow-Kazan, which is part of transport corridor Moscow-Beijing.

Russia and China are determined to reduce U.S. and North Atlantic Treaty Organization (NATO) presence in Central Asia to what it was before the 2001 invasion of Afghanistan. The SCO has consistently rebuffed U.S. requests for observer status, and has pressured countries in the region to end U.S. basing rights. The United States was forced out of Karshi-Khanabad in Uzbekistan in 2005, and from Manas in Kyrgyzstan in 2014.

“At present, the SCO has started to counterbalance NATO’s role in Asia,” says Aleksey Maslov, chair of the Department of Asian Studies of the Higher School of Economics in Moscow. And the new members, he says, want in to safeguard their interests. (Source: VoR)

China overtook Germany as Russia’s largest trading partner in 2011, Last year, China acquired 12.5 percent of Russia’s Uralkali (URKA:RM), the biggest producer of potash in the world, and China National Petroleum agreed to prepay Rosneft (ROSN:RM), run by Putin associate Igor Sechin, about $70 billion as part of a $270 billion, 25-year supply deal. That was followed by Rosneft’s $85 billion, 10-year accord with China Sinopec and China National Petroleum’s purchase of 20 percent of an Arctic gas project from Novatek for an undisclosed sum. (Source: Bloomberg Businessweek )

The BRICS

The BRICS met 2013 in Durban, South Africa, to, among other steps, create their own credit rating agency, sidelining the “biased agendas” of the Moody’s/Standard & Poor’s variety. They endorsed plans to create a joint foreign exchange reserves pool. Initially it will include US$100 billion. It’s called a self-managed contingent reserve arrangement (CRA). brics cra

During the July (2014) BRICS Summit in Brazil the five members agreed to directly confront the West’s institutional economic dominance. The BRICS agreed to establish the New Development Bank (NDB) based in Shanghai , pushed especially by India and Brazil, a concrete alternative to the Western-dominated World Bank and the Bretton Woods system. With initial authorized capital of $100 billion, including $50 billion of equally shared initial subscribed capital, it will become one of the largest multilateral financial development institutions. Importantly, it will be open for other countries to join.

In addition creation of the Contingent Reserve Arrangement, or currency reserve pool, initially sized at $100 billion, will help protect the BRICS countries against short-term liquidity pressures and international financial shocks. Together with the NDB these new instruments will contribute to further co-operation on macroeconomic policies. According Conn Hallinan – in his article Move Over, NATO and IMF: Eurasia Is Coming – The BRICS’ construction of a Contingent Reserve Arrangement will give its members emergency access to foreign currency, which might eventually dethrone the dollar as the world’s reserve currency. The creation of a development bank will make it possible to bypass the IMF for balance-of-payment loans, thus avoiding the organization’s onerous austerity requirements.

Also it was agreed MoU’s among BRICS Export Credit and Guarantees Agencies, as well as the Cooperation Agreement on Innovation within the BRICS Interbank Cooperation Mechanism, which will offer new channels of support for trade and financial ties between the five countries.

So in near future BRICS will be trading in their own currencies, including a globally convertible yuan, further away from the US dollar and the petrodollar. All these actions are strenghtening financial stability of BRICS – a some kind of safety net precaution, an extra line of defense.

Emerging economic powers such as China, India and Brazil have long been demanding greater share of votes in multilateral development institutions like the World Bank, International Monetary Fund and the Asian Development Bank (ADP) to reflect their recent phenomenal growth. China’s economy is expected to grow to $10 trillion this year, yet its share of votes in the Bretton Woods institutions is only 3.72 percent, compared with 17.4 percent for the United States. The signing ceremony of the Memorandum of Understanding on Establishing Asian Infrastructure Investment Bank (AIIB) took place in Beijing, Oct. 24, 2014 According to ADB, in the 10 years up to 2020, the region requires investments of $8 trillion in terms of national infrastructure, or $800 billion a year. The ADB currently lends out only about 1.5 percent of this amount. The AIIB is expected to have an initial capital base of $100 billion. The AIIB, to begin with, will serve at least five objectives for China. First, it could help China invest part of its foreign exchange reserves of $3.9 trillion on commercial terms. Second, it will play a vital role in the internationalization of the yuan. And fifth, the AIIB will boost China’s global influence and enhance its soft power.

BRICS could be expanded to include the MINT countries (MINT is an acronym referring to the economies of Mexico, Indonesia, Nigeria, and Turkey.), thus furthering the organization’s scope and creating opportunities for a long-term strategic ‘flip’ of those states from their largely Western orientations.

Being in the same organization does not automatically translate into having the same politics on international questions. The BRICS and the recent Gaza conflict are a good example. China called for negotiations; Russia was generally neutral, but slightly friendly toward Israel; India was silent (Israel is New Delhi’s number-one source of arms); South Africa was critical of Israel, and Brazil withdrew its ambassador.

As Russia is taking over the position of the BRICS Chair, the next summit will be held in the city of Ufa in the Republic of Bashkortostan, in July 2015.

The SCO

The Shanghai Cooperation Organization (SCO) is the cradle in which the Russian-Chinese strategic partnership (RCSP) was born and raised. Originally founded as the Shanghai Five in 1996, it was reformed as the SCO in 2001 with the inclusion of Uzbekistan. Less than a month after the BRICS’ declaration of independence from the current strictures of world finance, the SCO—which includes China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan—approved India, Pakistan, Iran, and Mongolia for membership in the organization. Also SCO has received applications for the status of observers from Armenia, Azerbaijan, Bangladesh, Belarus, Nepal and Sri Lanka.

SCO map

It was the single largest expansion of the economic cooperation and security-minded group in its history, and it could end up diluting the impact of sanctions currently plaguing Moscow over the Ukraine crisis and Tehran over its nuclear program. These countries directly fall into the immediate sphere of the RCSP, where either Russia or China can exert some degree or another of important influence to varying degrees. Also, the SCO sets out the foundations of the RCSP, listing the fight against “terrorism, separatism, and extremism in all their manifestations” (thus including Color Revolutions) as their foremost foe. It just so happens that the U.S. engages in all of these activities in its Eurasian-wide campaign of chaos and control, thereby placing it at existential odds with Russia and China, as well as the other official members. Even before the recent additions, SCO represented three-fifths of Eurasia and 25 percent of the world’s population.

For Iran, SCO membership may serve as a way to bypass the sanctions currently pounding the Iranian economy. Russia and Iran signed a memorandum in August (2014) to exchange Russian energy technology and food for Iranian oil, a move that would violate U.S. sanctions. One particular constraint is Russia’s important relationship with Israel, which Moscow will not give up unless Jerusalem drops its neutral stance and joins the U.S.-led condemnation of Russia.

Chinese President Xi Jinping has also promoted new regional security initiatives. In addition to the already existing Shanghai Cooperation Organization, a Chinese-led security institution that includes Russia and four Central Asian states, Xi wants to build a new Asia-Pacific security structure that would exclude the United States.

As for India and Pakistan energy is a major concern the membership in the oil- and gas-rich SCO is quite reasonable. Whether that will lead to a reduction of tensions between New Delhi and Islamabad over Kashmir remains to see, but at least the two traditional enemies will be in same organization to talk about economic cooperation and regional security on a regular basis.

As joint forum the SCO can ease tensions in Central Asia e.g. between SCO members Uzbekistan and Kyrgyzstan over borders, and both countries, plus Tajikistan, over water rights. Most SCO members are concerned about security, particularly given the imminent departure of the United States and NATO from Afghanistan. That country might well descend into civil war, one that could have a destabilizing effect on its neighbors. From August 24 -29, SCO members China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan took part in “Peace Mission 2014,” an anti-terrorist exercise to “subdue” a hypothetical Central Asian city that had become a center for terrorist activity.

The BRICS and the SCO are the two largest independent international organizations to develop over the past decade. There is also other developments to reduce old U.S. global dominance. The newly minted Union of South American Nations (USAN) includes every country in South America, including Cuba, and has largely replaced the Organization of American States (OAS), a Cold War relic that excluded Havana. While the United States and Canada are part of the OAS, they were not invited to join USAN.

Eurasian Economic Union (EEU)

Eurasian integration has moved to a higher level, to replace the EurAsEC came a new form of closer Association of the Eurasian Economic Union (EEU) also known as the Eurasian Union (EAU). To him by the old member States (Russia, Kazakhstan, Belarus) was joined by Armenia, the next candidate in the list on the accession of Kyrgyzstan, and later, his desire to join the EAEC expressed and Vietnam. Also the accession of Turkey and Syria are on the way.

EEU mapMoscow began building a Russian-led community in Eurasia that would give Russia certain economic benefits and, no less important, better bargaining positions with regard to the country’s big continental neighbors—the EU to the west and China to the east.

Moldova, Ukraine and Georgia have been offered by both the European Union and the Eurasian Economic Union to join their integration unions. All three countries opted for the European Union by signing association agreements on March 21, 2014. However break-away regions of Moldova (Transnistria), Ukraine (Republic of Donetsk) and Georgia (South Ossetia and Abkhazia) have expressed a desire to join the Eurasian Customs Union and integrate into the Eurasian Economic Union.

Putin is scheduled to visit Japan later in 2014 in an effort to keep Russia’s technology and investment channel to the country open. And Moscow is expected to reinvigorate ties with India, particularly in the defense technology sphere, under the leadership of newly elected Prime Minister Narendra Modi.

The Eurasian union may become an add-on to, or even an extension of, China’s Silk Road project – a common space for economic and humanitarian cooperation stretching all the way from the Atlantic to the Pacific Ocean

 

Treaties and development stages of Eurasian Economic Union/Structural evolution

1991 1996 2000 1995- 2007 2007 & 2011 2014
Eurasian Economic Union (EEU)
Eurasian Economic Space
Eurasian Customs Union (ECU)
Eurasian Economic Community (EurAsEC)
Increased Integration in the Economic and Humanitarian Fields
Commonwealth of Independent States (CIS)

Other bilateral development

Russia is in the process of politically and economically integrating with Kazakhstan and soon Kyrgyzstan under the auspices of the Eurasian Union, and it has mutual security commitments with Kazakhstan, Kyrgyzstan, and Tajikistan under the Collective Security Treaty Organization (CSTO). China, on the other hand, is more of a soft leader in Central Asia, having established lucrative business contacts in recent years and struck extremely strategic energy deals with most of the region’s members, first and foremost Turkmenistan.

A Russian-Iranian strategic partnership would extend beyond Caspian and nuclear energy issues and see implicit cooperation between the two in the Mideast, especially in Syria, Iraq, and Yemen. It can even carry over into Afghanistan after the NATO drawdown by year’s end. This can help to build an alternative non-Western-centric trade network that can bolster Russia’s complex economic interdependence with other states. This would give it the opportunity to expand mutual relations beyond the economic sphere and perhaps eventually associate these states into the multilateral webs of BRICS and the SCO.

Russia is also pursuing bilateral relations with Iran with fewer constraints. This refers to nuclear energy, oil and gas, and arms deals, all based on pragmatic considerations: a Russo-Persian alliance is unlikely in view of many differences between Moscow and Tehran and thick layers of mutual suspicion. For Iran, SCO membership may serve as a way to bypass the sanctions currently pounding the Iranian economy. Russia and Iran signed a memorandum in August (2014) to exchange Russian energy technology and food for Iranian oil, a move that would violate U.S. sanctions.

At the recent summit of the SCO in Dushanbe (11-12 Sep. 2014 )the cooperation with SCO-applicant Iran went wider. Some of the projects were following:

  • The well-known “Uralvagonzavod”, began talks with Iran on the supply of freight cars 40 billion annually.
  • Interestingly, Iran is not on the camera, discussing terms of oil supplies in exchange for electricity, in which Russia plans to build in Iran, the network of hydro – and thermal power plants.
  • Iran and Russia have made progress towards an oil-for-goods deal sources said would be worth up to $20 billion, which would enable Tehran to boost vital energy exports in defiance of Western sanctions. In January Reuters reported Moscow and Tehran were discussing a barter deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.

(Source: EN.XPPX.org )

One particular constraint is Russia’s important relationship with Israel, which Moscow will not give up unless Jerusalem drops its neutral stance and joins the U.S.-led condemnation of Russia.

Putin is scheduled to visit Japan later in 2014 in an effort to keep Russia’s technology and investment channel to the country open. Russia is interested in restarting talks to build a natural gas pipeline between its Sakhalin Island and Japan’s far northern island of Hokkaido, Russia already supplies 9.8 percent of Japan’s LNG imports. The proposed pipeline would deliver 20 billion cubic meters of natural gas every year, which at full capacity would supply 17 percent of Japan’s total natural gas imports. As an additional bonus, using a pipeline does not require the building of expensive regasification plants and natural gas from Russia would probably still be relatively cheap. This is also part of Moscow’s attempt to balance its interests and expand its energy influence eastward.

Also Moscow is expected to reinvigorate ties with India, particularly in the defense technology sphere, under the leadership of newly elected Prime Minister Narendra Modi.

South stream serbiaRussia also hopes that Russian-Serbian trade will reach 2 billion dollars this year. He said that a free trade regime existing between the two countries was contributing to steady development of Russian-Serbian economic ties. “Our reciprocal trade turnover grew by 15% to reach 1.97 billion dollars in 2013. It grew by another 16.5% to reach 1.2 billion dollars in the first half of 2014. We hope to reach the figure of 2 billion dollars this year” Putin stressed. Positive dynamics can be seen in the sphere of investments. The total volume of Russian capital investments in Serbia has exceeded 3 billion dollars, the bulk of which was channeled into the strategically important energy sector.

While Russia is consolidating its influence over the former Soviet sphere with states which it already has cultivated deep relations with, China is moving in due its strategic interest in Central Asia. For China a top priority is to be able to diversify its natural resource import routes in order to avoid the U.S. dominated Straits of Malacca.

The growing influence of China in Southeast and East Asia and the Indian Ocean is explained with “string of pearls” concept (strategic points such as Hainan Island, the Woody Islands/close to Vietnam, Chittagong/Bangladesh, Sittue and the Coco Islands/Myanmar, Hambantota/Sri Lanka etc.). The “string of pearls” strategy is aimed at protecting China’s oil flows, affirming the country as a global naval power with diverse interests throughout the world, and overcoming attempts by the USA to cut off access to or from China via the world’s oceans. Furthermore, an important task lay in minimizing potential threats in the most complex and vulnerable choke point at the junction of two oceans, named the “Malacca Dilemma”. (Source and more in Second Wind for China’s String of Pearls Strategy by Nina Lebedeva ).

Tehran is reaching out to Beijing as well. Iran and China have negotiated a deal to trade Iran’s oil for China’s manufactured goods. Beijing is currently Iran’s number-one customer for oil. In late September, two Chinese warships paid a first-ever visit to Iran, and the two countries’ navies carried out joint anti-piracy and rescue maneuvers.

Importing more gas from Russia helps Beijing to gradually escape its Malacca and Hormuz dilemma and industrialize the immense, highly populated and heavily dependent on agriculture interior provinces.

The Northern East-West Freight Corridor (Eurasian Landbridge) is an idea to link the Far East and Europe by rail takes its origin with the construction of the Trans Siberian railway linking Moscow to Vladivostok, completed in 1916. With a length of 9,200 km it is the longest rail segment in the world. It was initially used solely as an inland rail link, but in the 1960s the Soviet Union started offering a landbridge service from Vladivostok using the Trans Siberian to reach Western Europe.

east-west freight corridor

Energy war

U.S. ally inside OPEC, the kingdom of Saudi Arabia, has been flooding the market with deep discounted oil, triggering a price war within OPEC, with Iran following suit and panic selling short in oil futures markets. The Saudis are targeting sales to Asia for the discounts and in particular, its major Asian customer, China where it is reportedly offering its crude for a mere $50 to $60 a barrel rather than the earlier price of around $100. When combined with the financial losses of Russian state natural gas sales to Ukraine and prospects of a US-instigated cutoff of the transit of Russian gas to the huge EU market this winter as EU stockpiles become low, the pressure on oil prices hits Moscow doubly. More than 50% of Russian state revenue comes from its export sales of oil and gas. The US-Saudi oil price manipulation is aimed at destabilizing several strong opponents of U.S. globalist policies. Targets include Iran and Syria, both allies of Russia in opposing a US sole Superpower. In fact the oil weapon is accelerating recent Russian moves to focus its economic power on national interests and lessen dependence on the Dollar system. If the dollar ceases being the currency of world trade, especially oil trade, the US Treasury faces financial catastrophe.

The shale gas revolution and a greater availability of LNG technologies, EU regulatory initiatives and implementation of the Third Energy Package provisions play a key role in transformations of gas markets.

ME pipelinesNow there might be a global oil war underway pitting the United States and Saudi Arabia on one side against Russia and Iran on the other.

In July 2011, the governments of Syria, Iran and Iraq signed an historic gas pipeline energy agreement which went largely unnoticed in the midst of the NATO-Saudi-Qatari war to remove Assad. The pipeline, envisioned to cost $10 billion and take three years to complete, would run from the Iranian Port Assalouyeh near the South Pars gas field in the Persian Gulf, to Damascus in Syria via Iraq territory. The agreement would make Syria the center of assembly and production in conjunction with the reserves of Lebanon. This is a geopolitically strategic space that geographically opens for the first time, extending from Iran to Iraq, Syria and Lebanon. As Asia Times correspondent Pepe Escobar put it, “The Iran-Iraq-Syria pipeline – if it’s ever built – would solidify a predominantly Shi’ite axis through an economic, steel umbilical cord.”

In ongoing oil war the U.S. shale oil producers will suffer most. According to experts’ estimates, the cost of production is around 80-90 dollars a barrel, 4-5 times more than the traditional oil. It means that the current price – 85 dollars a barrel as of October 17 – makes the companies operate in the red. Some producers will have to suspend operations facing mass bankruptcy in case the oil price falls lower than 80 dollars as shareholders start getting rid of zero profit bonds. The shale oil «soap bubble» will blow like the housing construction industry «bubble» blew in 2008. Of course, as time goes by oil prices will go up but it’ll be a different world with some US oil producers non-existent anymore…

Russia insists the South Stream project should be exempt from the effect of the Third Energy Package because it signed bilateral inter-governmental agreements with the EU countries participating in the construction of the gas pipeline on their territory before the EU’s new energy legislation came into force. Therefore, Russia says that the European Commission’s requirement to adapt these documents to the Third Energy Package contradicts the basic law principle that legislation cannot have retroactive force. The Third Energy Package requires, in particular, that a half of the capacities of the pipeline built with Russian money must be reserved for independent suppliers, i.e. for cheap and free transit of Caspian gas to Europe independently from Russia. Therefore, Russia does not recognize the legitimacy of applying the Third Energy Package to the South Stream gas pipeline project.

Bottom line

Russia has accelerated its building of the Eurasian Bridge: Russia has the geostrategic opportunity of being an air, land, and sea bridge between Europe and East Asia. In line with China’s Silk Road and New Eurasian Land Bridge projects, the concept of the Northern Sea Route, and international air routes traversing Siberia, Russia can use its geographic position to reap the resultant dividends of East-West trade and thereby increasing its middleman importance.

The geopolitical situation is now transforming from traditional Sino-U.S. relations to U.S.-China-Russia triangle in which China, rather than the United States, will be the central player.

In addition the EU is worried that Russia will turn east and Europe will lose much of its Russian market share. At a time when the euro area threatens to collapse, where an acute economic crisis has led the U.S. into a debt of up to 14 940 billion, and where their influence is dwindling in the face of the emerging BRICS powers, it becomes clear that the key to economic success and political domination lies mainly in the control of the energy source of the century: gas.

With China signing the natural gas deal with Russia and the president of China publicly stating that it’s time to create a new security model for the Asian nations that includes Russia and Iran, it’s clear China has chosen Russia over the U.S. Today the US-backed wars in Ukraine and in Syria are but two fronts in the same strategic war to cripple Russia and China and to rupture any Eurasian counter-pole to a U.S.-controlled regions. In each, control of energy pipelines, this time primarily of natural gas pipelines—from Russia to the EU via Ukraine and from Iran and Syria to the EU via Syria—is the strategic goal.

So far U.S. has bullied its way around smaller nations for too long now. It seems to me that finally there is coming to be a coalition of new axis with Eurasia and China. Russia and China are leading of developing a network of “parallel structures” to existing international organizations and institutions. The end goal is create an alternative reality for international engagement, so that China can expand its own influence while escaping the restrictions of the current U.S.-dominated system.

eurasia revolution

Good performance is welcome but will not change the condition of refineries

Posted by on 11/11/14

The performance of oil companies in Q3 2014 was strongly affected by an increase in refining margins, which was primarily attributable to a surprising decline in crude oil prices. How will oil prices and margins change in the future? Not long ago, I explored the reasons behind the dip in crude oil prices. Now, I would like to take a closer look at refining margins.

The financial performance of companies operating in the petrochemical industry – which transform one commodity, such as crude oil, into another commodity, such as diesel fuel, gasoline and heavy fuel oil – is strongly dependent of the difference between the market price of petroleum products and the price of the crude consumed to produce them. The difference is what we call a margin.

When talking about individual products we use the term ‘crack spread’ (price of diesel oil minus price of crude, price of gasoline minus price of crude, etc.). In reference to a refinery’s entire product output, however, the term ‘refining margin’ is used. As product composition of output is adjusted according to demand structure and product prices, which are not fixed, as well as depending on product yield from individual crude types, refineries calculate model refining margins, which are based on constant product shares, average in past periods.

It should be noted that short-term margin fluctuations are something to be expected as fuel prices are strongly affected by the seasonality of consumer demand, which has no bearing on the crude oil market. Temporary / seasonal production stoppages at refineries (maintenance shutdowns) also affect fuel prices by reducing fuel supply and oil consumption. In consequence, fuel prices are out of phase with oil prices when it comes to short-term fluctuations, often changing in opposition to each other, which may result in margin ups and downs.

Let’s look at PKN Orlen’s model refining margin in 2014. Initially negative in January (USD -0.10/b), the margin grew to USD 4.3/b in April, then shrank to USD 1.5/b in May, and remained at that level in June, but only to rise again in September (to USD 5.5/b). When we relate these fluctuations to changes in crude prices, we will see that the rising crude prices were accompanied by falling margins, and vice verse – when oil prices fell, margins went up. Knowing that crude prices reduce margins, this is no surprise.

However, margins behave like this (i.e. react strongly to changing crude oil prices) only in very specific circumstances:

  • when crude oil prices change abruptly, increasing in reaction to actual or anticipated supply disruptions (fear premium) or decreasing as a result of production growth, which is considerably less common, and
  • over the short term, when product prices have not yet adapted to new crude prices.

In some respects, crude oil is a financial asset, and its price is affected, through financial markets, by unexpected changes more strongly and rapidly than the price of fuels (products of crude processing), which typically react no sooner than when actual changes materialise.

In situations where global GDP and liquid fuel demand projections fall down abruptly, as it is happening now (the same took place in 2012), crude oil prices react by decreasing more sharply and quickly than the prices of petroleum products, which change gradually and over longer periods of time.

Knowing this relationship, one can expect that an actual decline in crude oil prices (if it is sustained) will likely result, within a period of several months, in lower fuel prices, which will in turn cause margins to shrink. The opposite holds true as well: if the price of crude goes up, due to geopolitical factors or other reasons, refining margins will decrease at first, and after some time fuel and petroleum product prices will follow the new oil price trend, resulting in higher margins.

Over longer time periods, the refining margin ceases to be a simple price difference and becomes a parameter tied to technologies used in the global petroleum industry: margins are set in relation to the most expensive technologies required to meet global fuel demand. In such a situation, the petroleum industry’s cost-based fuel pricing mechanism kicks in, setting the marginal cost of processing crude oil according to the formula: crude price + technological margin (for the least efficient producer / technological process). Growing fuel demand creates room on the market for less efficient refiners, and it is them who ultimately set the market price (production must be profitable over the long term). When new, more efficient refineries enter the market, on the other hand, supply increases, margins go down and the marginal cost of producing fuel is reduced, forcing less efficient refiners out of the market. To remain on the market, refineries must produce fuels at the lowest possible cost. An unexpected increase in margins is always good news, but it must not be taken as a foundation for the future.

 

China can reduce air pollution when it has to

Posted by on 06/11/14

From November 3 to 11 Beijing is hosting an APEC Summit, which 20 Heads of Government from the Pacific region will attend.

To that end, the local authorities have undertaken utmost efforts to clean up their city, which is one the most polluted on earth.

The streets are “empty” because schools, local government, public and private companies send their students and staff on temporary leave. This enables the authorities to halve the number of cars on the roads, according to even and uneven number plates.

The air is “clean” because some 300 energy-intensive factories around Beijing have to close down or reduce their activities during the Summit. Public works within the city are temporarily suspended.

The APEC meeting can therefore take place in a beautiful, clean and quiet city that in reality does no longer exist; and the international visitors can return home with the impression that China is finally coming to grips with pollution, something its citizens have been demanding for years.

After this impressive “clean-up” in Beijing popular pressure on local and central government is bound to grow to tackle air pollution and thus help reigning in rising health costs and climate-related natural catastrophes.

This will require phasing out coal-fired power plants,and introducing equipment to eliminate small particles in factory-chimneys as well as less-polluting vehicles.

The Chinese political establishment is becoming increasingly aware of these risks and would be well advised not to further delay urgent action.

The Chinese position at the Paris Climate Conference in December 2015 will show to what extent awareness will have turned into action.

Eberhard Rhein, Brussels, 5/11/2014

 

ABC of the power segment – part 2

Posted by on 03/11/14

Although the share of renewable energy sources is growing, fossil fuels, supplying more than 80% of global primary energy demand, play the dominant role. In 2011, fossil fuels, which include crude oil, coal and natural gas, met respectively 32%, 27% and 22% of global energy demand. In the power sector, proportions are different, with coal accounting for 41% and natural gas for 22% of electricity generation, and a meagre 5% attributable to crude oil, which has been effectively eliminated as a means of producing electrical energy in the wake of the oil crises of the 1970s and 1980s. Crude oil has a lower share in electricity generation than nuclear power (9%), hydropower (6%) and other renewable energy sources (16%). Until the inception of the revolutionary (unconventional) technology allowing natural gas to be extracted directly from source rock, fossil fuel production did not attract much interest. Today, these unconventional technologies are successfully applied in crude oil extraction as well. We have no reason to believe that coal, whose natural deposits could supply the energy sector for a few thousand years, will escape the technological revolution. However, before the coal revolution unfolds, let us have a look at how hard coal is extracted around the world. Are lignite and hard coal mined differently? How is natural gas produced? What technology is used to extract the gas trapped in unconventional deposits?

How is hard coal produced around the world?

70% of coal is mined underground, while 30% is extracted in open-pit mines.

Open-pit mining is less expensive, with the average production cost (translated into the złoty) in the region of PLN 20–24 per tonne, compared to as much as PLN 680 per tonne for underground mining. The open-pit method is suitable for exploiting coal strata located at relatively shallow depths. Since the disadvantage of surface mining is its highly destructive environmental impact, once environmental costs and site reclamation expenses are taken into account, the cost of production goes up significantly.

The advantage of underground coal mines is that they can carry out extraction activities even in highly urbanised areas, as they do not occupy a lot of space on the surface. Naturally, mining in urban areas gives rise to various problems, mining damage being the most serious. The necessity to protect urban areas from mining damage entails choosing more expensive extraction methods, which adds to production costs. Sometimes a mine has to refrain from exploiting a deposit and leave it as a special protective pillar ensuring the safety of surface structures.

Underground mines can reach deposits located as deep as over one kilometre below the surface.

High hopes are currently pinned on technologies for tapping the energy from coal without extracting the material to the surface (deep borehole mining), which allow reaching deposits located at the depth of several kilometres subsurface.

Are lignite and hard coal mined differently?

No, they are not. In both cases, the production process is similar, except that lignite is produced predominantly in open-pit mines (some 97%) rather than underground mines (about 3%).

Gas

Natural gas is extracted through wells drilled in subsurface rock formations. This method, known as borehole mining, dates back to the mid-19th century. Although we have seen consistent technological progress since then, natural gas is still extracted using the same method (Canada’s oil sands are an exception). Natural gas occurs in reservoir rock, which have different physical and chemical characteristics. According to a recent typology, crude oil and gas can accumulate in formations characterised by good reservoir quality (conventional reservoirs), medium reservoir quality (tight oil and gas) or poor reservoir quality (shale). The last two categories are known as unconventional reservoirs. Shale is also a reservoir rock, which means that it contains organic matter and is able to generate and expel, as well as accumulate, large amounts of hydrocarbons. As such, shale is a hydrocarbon generator and collector at the same time.

What technology is used to extract the gas trapped in unconventional deposits?

There are three stages involved in the production of natural gas: exploration – geological surveying and drilling; appraisal – appraisal well drilling; and development – production wells are drilled and surface infrastructure for producing, processing, storing and transporting natural gas is erected.

Finding ‘sweet spots’

Critical to any shale gas production project’s profitability is the accurate identification of ‘sweet spots’ – areas where the concentration of hydrocarbons guarantees profitable production. American and Canadian operators, engaged in unconventional hydrocarbon production, have the most extensive experience in this respect. However, given that significant differences exist between Polish and North American shale, this expertise cannot be easily transferred onto the Polish ground. Among Polish companies, it is licence operators, such as ORLEN Upstream, that have access to the best know-how.

Some facts about wells:

vertical drilling

  • Vertical drilling is used in unconventional projects in the same way it is traditionally used to produce crude oil and natural gas from conventional deposits.
  • In the central part of the drilling rig, there is a drill string (lengths of coiled steel tubing) with a mobile drilling bit attached at the end. During the drilling operation, special drilling fluid is fed into the drill string and bit nozzles to accelerate the drilling process, cool the drill bit, stabilise the well, maintain appropriate pressure, and carry out drill cuttings. Drilling fluid is a mixture of water and additional substances (which may, for example, increase fluid weight and density).
  • As drilling progresses, steel casing is inserted into the space between the drill pipe and the rock wall, and then cemented to provide stability and strengthen the well, as well as to seal the borehole off from aquifers and other rock formations. Well casing and cement also prevent the contamination of water intakes with the drilling fluid and, at the later stage, with the fracturing fluid.
  • The latest technologies enable vertical wells to be drilled to depths ranging from a few thousand to more than a dozen thousand metres in extreme cases. Shale deposits in Poland can be found at depths from about 2,000 metres in the east of the country, to above 5,000 in the west.

horizontal drilling

  • Once the vertical well has reached its target depth, a directional well (which may be horizontal or slanted) is drilled into the gas-bearing shale formation, whose thickness typically ranges from several to several dozen metres. With the available technology, the maximum length of directional boreholes permitting economically viable production can be in excess of 3,000 metres.
  • Given their substantially larger contact with the field, horizontal wells enable more efficient production from unconventional gas deposits than vertical wells. Approximately 8 directional/horizontal wells branching off from a single drill site are enough to access a field which would normally require several dozen vertical wells to begin production. Horizontal wells have been drilled in Poland since the 1980s, and the longest horizontal sections, dating back to the 1990s and reaching in excess of 2,400 metres, were also used to stimulate wells (through fracturing). The work was carried out by Polish engineers aided by a few specialist foreign companies.

well cementing and perforation

  • Once the horizontal sections have been drilled, casing is again inserted and cemented to ensure well impermeability, which is verified through pressure testing.
  • Subsequent well sections are then perforated to enable hydraulic fracturing treatment.

hydraulic fracturing

  • During the hydraulic fracturing procedure, fracturing fluid (mostly a mixture of water and sand) is injected into the wellbore under pressures often exceeding 600 bar (more than 300 times that in a car tyre). When a sufficient number of fractures appear in the treatment zone, a mixture of appropriately-grained sand and water is introduced into the cracks, keeping them open and enabling gas flow into the well. There exist many variants of the hydraulic fracturing technology. To ensure that the procedure is successful, the fracturing fluid is mixed with small amounts (0.5–1%) of chemical additives, which are able to regulate certain fluid parameters, including its viscosity, water content and specific weight. Other proppants may be used instead of sand, such as ceramic materials or polymer fluids, which create networks of interlacing fibres.

 

 

 

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