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EUCERS Newsletter
N
European Centre for Energy & Resource Security
Department of War Studies, King’s College
London
Issue 36
06/2014
Introduction
In this Month’s Edition:
Welcome to
Newsletter.
the
36th
edition
of
the
EUCERS
This month’s general article section includes an
Energy Outlook for India by Gokul Chaudhri, Partner at
BMR & Associates LLP,, and Sumit Singhania,
Singhania a
Director in the Corporate International tax practice of
BMR
&
Associates
LLP..
Furthermore,
Gus
Constantinou, Research Associate at EUCERS,
EUCERS writes
on the recent energy security crisis in Iraq also in light
of EUCERS’ last roundtable discussion.
In the Activities section, we report from the Third
Roundtable Discussion on "Iraqi - Kurdistan Capital of
Oil and Gas Exploration – What Does it Mean for
Europe?" Since our next workshop will take place on
July 3rd, at King’s College London, with the topic of
“The Implications of Iran’s Re-integration
integration in Global
Energy Markets”, we will also provide background
information for the event in this edition..
We are very happy to welcome Professor Theo Farrell,
Farrel
Head of War Studies Department, King’s College
London as the chair of the advisory board.
Furthermore, we would like to announce that our
Summer Programmes are about to start,
start including the
EUCERS Executive Energy Seminar (EEES) and the
Summer School on Global Energy Politics.
Politics
Introduction
Newsletter articles
article
India – Energy Outlook
By Gokul Chaudhri & Sumit Singhania
ISIS and the impact to Iraqi Energy
Security
By Gus Constantinou
Activities
3rd EUCERS/ISD/KAS Talk - Report
By Justus Andreas
4th EUCERS/ISD/KAS Talk – Background
By Justus Andreas
Announcement
EUCERS on the Road
Publications
In EUCERS on the Road we will inform you about
conference participation and presentations of our
members, and latest publications.
I hope you enjoy the newsletter!
Justus Andreas
KAS- Research Fellow at EUCERS, King’s College
London
Contact EUCERS
EUCERS on Facebook and Twitter
EUCERS Advisory Board
Acknowledgements
EUCERS Partners and Sponsors
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ARTICLES
India – Energy Outlook
Gokul Chaudhri & Sumit Singhania
Three dimensions that are important for understanding
India’s energy sector – India as a consuming market for
energy, India as a resource nation and the Indian eco-system
eco
for investors. In this paper, the focus iss on production of and
market for hydrocarbons rather than coal, given that whilst
the nation is well endowed in the latter it is still
predominantly owned and controlled by the state and
expected to tail the hydrocarbon industry development in
its evolution
on for private participation by a decade. The
power transmission and distribution challenges are again
not focused upon despite its importance as a constraining
factor as these and the corresponding reforms are
predominantly state, rather than federal, and hence defy a
singular analysis.
India, statistically, is the world’s seventh largest energy
producer and the fourth largest energy consumer (after
China, USA & Russia), accounting for more than 4.5 percent
of the total global energy consumption. It has the fifth
largest power generation portfolio world-wide
wide with coal and
gas accounting for an estimated 58 percent and 9 percent
share respectively. The country has been adding capacity
over the past years, with the total (power) installed capacity
growing to
o 248GW. Increased economic growth, coupled
with growing urbanization, and a wider audience that
needed access to energy sources, are likely to push energy
demand further in the country. It is largely anticipated that
the country’s energy requirements shalll continue to be met
predominantly by the hydrocarbon sector (over 50 percent
of the total energy needs), though some amount of
interchange between coal, oil and gas sources is bound to
take place with newer and more technologically efficient
gas discoveries are made possible.
Gokul Chaudhri is Partner with BMR
Advisors, with responsibilities that
include leading the Firm’s direct tax
practice and the industry program for
energy and environment. He is the lead
partner for select Fortune 500 client
accounts of the Firm.
In FY13, imports accounted for approximately 80 per cent of
the country’s total oil demand.
Oil consumption in India
Oil consumption is estimated to expand at a CAGR of 3.4 per
cent during FY 2008–16
16 to 4 MBPD by 2016.
Oil & Gas
• India imports nearly three-fourth
fourth of its petroleum
consumption (mostly of crude oil), while about 25 percent of
natural gas (entirely LNG) consumption comes from
imports. In FY 13, imports accounted for approximately 80
per cent of the country’s total oil demand. Crude oil
consumption demand is estimated to expand at a CAGR of
3.4 percent and import dependency could be expected to
reach 90 percent of total crude demand.
Import and domestic production of oil
Among the challenges facing the natural gas industry,
absence of crucial terminal, port and pipeline infrastructures
has emerged as major impediment to rapid growth of
country’s natural gas (LNG /PNG) sector. With the demand
for natural gas far exceeding the domestic supply, LNG
could be a long term alternative energy source. To be able
to ensure LNG supply, development of infrastructure
facilities such as ports for handing LNG cargoes and pipeline
capacity to efficiently transport the fuel at reasonable cost,
Page 3
are crucial. Per the latest statistics,, India, currently, has a
network of ~13,000 km of natural gas transmission pipelines
with a design capacity of around 337 mmscmd.
Coal
Dominance of coal in the energy mix shall continue in
foreseeable future. At present, India's coal dependence is
borne out from the fact that 54 percent of the total installed
electricity generation capacity is coal based. Furthermore,
over 70 percent of the electricity generated is from coal
based power plants.. Renewables such as wind, geothermal,
solar, and hydroelectricity
ectricity represent a growing but nascent
2 percent share of the Indian fuel mix; nuclear accounts for
nearly one percent participation in overall fuel mix.
The sector, however, continues to face inadequate private
participation despite coal remaining country’s
untry’s primary fuel
in past several decades. Whilst it is widely anticipated that
the coal sector reform shall be on the reforms agenda of the
newly elected federal Government, a set of transparent
regulatory guidelines for allocation of coal blocks required
requi
to do away with discretionary ambivalence and potential
scope of political scandals, and to minimize loss (or the
notional loss!) to the national exchequer on account of
allotment of coal assets to private firms without competitive
auctioning.
Renewables
In the wake of stress surrounding usage of fossil fuels, since
2000, India has effectively sought to greener fuel
alternatives for building sustainable energy capacities. The
installed capacity of renewable energy has rapidly increased
touching 32,269.6
9.6 Mw or 12.95 percent of the total potential
available in the country, as on March 31, 2014. The Ministry
of New & Renewable Energy (“MNRE”), Government of
India has set a target of achieving overall renewable energy
installed capacity of 41,400 Mw by 2017.
17. This creates an
opportunity worth $10.51 billion for the renewable market in
India till 2017.
The sector has witnessed relatively strong private
investment flows (on the back of 100 percent FDI permitted
for investment in generation
eration of power from renewable
sources), which is essential to materialize the potential of
renewables for supplying a clean and modern energy,
particularly in rural areas. However, project implementation
has been slightly off-the-mark
mark or at a tardy pace, primarily
due to multiple regulatory /policy tollgates. For Example,
Government’s policy that imposes mandatory domesticdomestic
content requirements, particularly for the solar industry, is
estimated to significantly hinder expansion of the sector. In
Sumit Singhania is a Director in the
Corporate International tax practice of
BMR & Associates LLP and has nearly a
decade-long
long experience in advising
multinationals and Indian business
houses. Sumit is a functional expert in
the Energy & Infrastructure practice of
the firm.
addition, rather than relying on import substitution the
focus should shift towards growth of strong local
manufacturing capacities through more open market
policies and investment in R&D.
Regulatory and fiscal policy measures – thus far!
emand-supply gap, reduce over
In order to bridge the demand
dependence on imports, and to promote self-sufficiency,
self
the Government has taken multiple policy and regulatory
measures, some of the key policy measures are as following:
Upstream
• New Exploration Licensing Policy (“NELP”) – To
encourage private investments in domestic exploration and
production
of
hydrocarbons,
the
Government
conceptualized NELP in 1997-98.
1997
The first round of bids
were invited in 1999, with Directorate
Directora
General of
Hydrocarbons (DGH)) as a nodal agency
agen
for NELP
implementation; since then, nine successful rounds of
bidding have taken place, and more than 250 Exploration
blocks (deep-water
water /shallow waters /on-land)
/on
have been
offered to private participants. Production sharing contract
(PSC) under the NELP
LP regime permits the contractors 100
percent cost recovery from sale of oil and gas before sharing
profit with the Government; cost recovery model is material
incentive for investors, especially in deep sea exploration
activities, as it guarantees recovery
recover of all sunk costs which is
key to attracting oil majors with proprietary technology.
In the stark reality although, out of 254 acreages auctioned
by the Government in past nine NELP licensing rounds,
commercial production could start in only three blocks
block and
the major gas discoveries have been mired with litigations
and controversies. India has struggled to evolve policy
frameworks that support the development and production
of world class assets.
• Coal Bed Methane Policy:
Policy To stimulate the exploration
and production of coal bed methane in the country, the
Government introduced the Coal Bed Methane Policy in
1997. 33 acreages have been bid out in four rounds of CBM
licensing.
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• To encourage wider private participation from foreign
strategic investments, the Government permitted 100
percent FDI (under automatic route) in Exploration and
Production activities under NELP regime.
Kelkar Committee has endorsed the revenue sharing model
in case of shallow and on-land acreages and continue with
cost recovery regime for deep-water acreages as the latter
are hugely cost-intensive.
• To incentivize new investments, the Ministry of Finance
had provided a seven year tax holiday for E&P operators
engaged in commercial production of mineral oil . The term
‘mineral oil’ was a cause of concern as the tax officials
sought to exclude natural gas from the ambit of tax holiday
provisions. In 2009, the Finance Act introduced tax holiday
for commercial production of natural gas under the NELP
VIII and CBM IV rounds of acreage licensing. Later, vide
Finance Act 2011, tax holiday for commercial production of
mineral oils was withdrawn for acreage(s) awarded after
March 31, 2011.
Midstream and Downstream
• To encourage participation from foreign oil field service
contractors and ensure world class technology is brought to
Indian E&P sector, the income tax Act, 1961 rationalizes the
regime for non-resident oil field service providers; eligible
contractors are not required to maintain books of account
and allowed to pay income tax on deemed profit basis. In
the recent years, the taxman has sought to deny the
deemed tax regime for enhanced revenue considerations.
The key impending reforms which are presently under
review by the DGH and the Ministry of Petroleum & Natural
Gas Sector (MoP&NG) are as following:
- To enable the private players to bid for hydrocarbon
acreage anytime during the year, the outgoing Government
had proposed moving towards an Open Acreage Licensing
Policy (“OALP”), wherein oil and gas acreage will be
available round the year instead of cyclical bidding rounds
launched under the NELP. It remains to be seen whether the
new Government shall pursue the transition to OALP in near
to medium term. Recently in January 2014, a Government
appointed Committee headed by eminent expert Dr Vijay
Kelkar endorsed the transition to OAPL regime, in his report
to the MoP&NG.
- The Government is also contemplating transition from
present cost recovery model for E&P acreage award, to
revenue-sharing model. The Comptroller and Auditor
General (CAG) had recently criticized the PSC regime on
grounds that it encouraged companies to inflate capital
expenditure and delay /minimize the Government’s share of
profit petroleum. The Rangarajan panel had suggested
moving to a revenue sharing regime that required
companies to state upfront the quantum of oil or gas they
would share with the Government from the first day of
production. Whilst the ball is in the court of MoP&NG, the
• The sector was opened up for FDI under automatic route in
2006. In relation to petroleum refining in case of Public
Sector Undertakings (PSU), FDI up to 49 percent has been
permitted under the automatic route recently, subject to
not involving any divestment or dilution of domestic equity
in existing PSUs. Since Government's policy for FDI
liberalization, domestic as well as foreign companies have
invested INR 99,714 Mn during FY 2004-05 to 2009-10 in oil
& gas sector.
• FDI in marketing of transport fuels (petrol, diesel &
aviation fuel) is also permitted subject to an investment of
INR 20 bn in exploration and production (E&P), refining,
pipelines, or terminals.
• Over the years, numerous various policies with its variants
have been implemented by the Government to regulate and
develop the fiscal landscape of the oil and gas sector. The
Petroleum Act to control issues relating to import,
transport, storage, production, refining and blending of
petroleum was already in place since 1934. Further, the Oil
Fields (Regulation and Development) Act, 1948 and the
Petroleum and Natural Gas Rules, 1959 provided regulatory
framework for domestic exploration and production of Oil &
Gas., The cost-plus socialistic Administered Pricing
Mechanism has been dismantled from April 2002.
• In 1997, the Government decided the phased dismantling
of Administered Pricing Mechanism (APM), with a view to
encourage investments in the refining sector by providing
reasonable tariff protection and making marketing rights for
transportation fuels viz. MS, HSD and ATF conditional on
owning and operating refineries with an investment of at
least INR 20 billion. Although, complete decontrol of
petroleum products’ pricing (ie diesel, PD Kerosene and
LPG) has so far been a mirage!
• In order to regulate the refining, processing, storage,
transportation, distribution, marketing and sale of
petroleum, petroleum products and natural gas, excluding
production of crude oil and natural gas, Petroleum and
Natural Gas Regulatory Board (“PNGRB”) has been
constituted under the Petroleum and Natural Gas
Regulatory Board Act, 2006. The vision of PNGRB is to
create a vibrant energy market with rapid and orderly
growth. Illustrative functions of the PNGRB include
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protecting interest of consumers by fostering fair trade and
competition, registering entities to market petroleum LNG
terminals, prescribed technical standards and specifications
for activities relating to petroleum, determination of
marketing margin etc.
Renewables
• Regulations supporting the development of renewable
energy in India are the Electricity Act of 2003 and the
National Electricity Policy of 2005. The Electricity Act of
2003 stipulates purchase of a certain percentage of the
power procurement by distribution utilities from renewable
energy sources. Under this Act, implementation of the
renewable portfolio obligation (RPO) is to be guided by the
regulatory provisions issued by the respective State
Electricity Regulatory Commissions (SERCs). The National
Electricity Policy of 2005 also mandates that the share of
electricity from non-conventional sources has to be
increased progressively.
• From fiscal policy standpoint, a ten year tax holiday is
allowed to undertaking engaged in generation, generation
and distribution of power from all sources. Besides,
developers are eligible for accelerated tax depreciation on
investments made in majority or all of renewable assets.
Key reforms on industry’s wish list
Clearly, the Indian hydrocarbon industry has undergone
cyclical regulatory and fiscal reforms in past two decades, as
the importance of the sector has continued to emerge more
prominently with rapid pace of economic growth.
From regulatory reforms standpoint, the upstream industry
requires enhanced autonomy to be granted to DGH
functioning, thus enabling a fast-track single-window
clearance for hydrocarbon acreage licensing. This will also
enable efficient operational decision making and bring back
confidence of foreign investors in the upstream sector.
Moreover, there is an impending need for adequate
empowering of the regulator for implementing reforms in
midstream and refining sectors. The sector will also keenly
watch out for an articulate policy framework for licensing of
new hydrocarbon acreage – whether the Government
prefers extant cost–recovery based PSC regime, or should
transition to revenue sharing based ULP regime – a
transparent and efficient policy is needed to encourage
investors.
Fiscal stability and clarity is key to encouraging enhanced
private participation; there is an urgent need for the
Government to bring the needless tax litigation to an end by
allowing tax holiday for natural gas and deemed profit to oil
field players, and re-introduce income tax holiday for
upstream activities. The refining sector shall expect the
Government to re-introduce tax holiday incentive for
investors to facilitate sizeable capacity addition and
encourage competition to enable competitive pricing of
petroleum products; improved tariff and rationalized
subsidy framework would also prepare ground of everillusive full decontrol of petroleum pricing.
To enhance domestic coal production capacity, it is
imperative for the Government to relook at the present
captive coal mining policy which has had a very limited
effect in encouraging private investment in the sector.
Ideally, the industry would expect the Government to
liberalize the sector by allowing 100 percent FDI in coal
mining for non-captive use as well.
India growth is intertwined with its energy sector
development – that is clearly understood by its policy
makers. What is now also quite clear is that the muddled
policies of the last government as it promoted socialistic
subsidy based prices for energy and tax problems caused
the failure to drive investment and corresponding growth
for the energy sector. The newly formed government is
expected and needs to be far more decisive, demonstrating
greater political will, on fuel pricing mechanism, for shift
from government controlled to independent regulators and
resolution of the tax disputes that has worried investors.
Clearly, India is a growing market for energy, has the
capacity to absorb investment capital for energy projects –
both resource development based and market access, and
to achieve there is need to design and deliver the regulatory
and policy framework commensurate to these objectives.
ISIS and the impact to Iraqi Energy Security
Gus Constantinou
The third EUCERS roundtable discussion, titled IraqiKurdistan: Capital of Oil and Gas Exploration – What Does it
Mean for Europe?, proved a timely and prescient one. Set
against the backdrop of the extremists Jihad group ISIS
(Islamic State of Iraq and al-Sham) advance from Syria into
northern Iraq and the capture of the city of Mosul, there
were many issues to discuss for the distinguished panel of
speakers. Chief amongst these was the question of the
security of the states of Iraq and Syria with the underlying
question of the role energy security would play in any future
regional changes. Potential reaction and opportunities to
these dramatic events from the international community
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was therefore the pressing point of conversation, especially
with regards to the Kurdish Regional Government (KRG).
But who are ISIS, and how were they able to dominate an
area of great geostrategic energy
gy importance? The groups
rise had been predicted and anticipated by many analysts
since the Syrian uprising against Bashar al-Assad
al
began to
take up arms.1 Indeed, the ISIS movement has foundations
in the insurgency against the US occupation in Iraq,
specifically
ifically the northern Sunni provinces. Known then as the
Islamic State of Iraq (ISI). The groups’ extremist approach to
Islamic governance caused the local population to turn on
the group through the US supported ‘Sons of Iraq’
movement, local Sunni tribes ensuring the security in that
regiong, ostensibly evicting ISI from their territory.2 The
conflict in Syria and its collapse in central authority provided
a second chance for the group to regroup and rebrand –
which they did.
The speed and efficiency in the way ISIS was able to take
territory of the Sunni north and west of Iraq suggests less a
rise in the power of ISIS (though it is powerful) so much as
Sunni dissatisfaction with the central rule of Nouri alal
Maliki’s Shia-supported
supported government in Baghdad.
That ISIS is also in charge of oil and energy resources on its
territory in Syria and Iraq has given the group ISIS
independent funding to stage attacks. Employing a strategy
of ‘gaining access to oil for themselves and denying it to
their enemies’ they have managed to ‘control several
petroleum fields [and] turned into a oil producer, selling fuel
to local consumers, to the regime of Syrian President Bashar
al-Assad
Assad that it is fighting, as well as to black marketers.’3
Though difficult to calculate, an Iraqi official recently
estimated ISIS’s wealth at ‘more than $2 billion.’4 Add to
these resources the hardware (in the form of vehicles and
heavy weaponry) taken from the fleeing Iraqi Army, and an
estimated $430 million after an armed raid on Mosul’s
central
tral bank and the stage is set for yet another protracted
conflict.
The ISIS offensive has ‘caused international oil prices to
spike by 5% to a nine-month
month high of US$115/barrel.’5
1
http://www.foreignaffairs.com/articles/141579/omar
http://www.foreignaffairs.com/articles/141579/omar-alnidawi/how-maliki-lost-iraq
2
http://www.washingtoninstitute.org/uploads/Documents/pub
s/ResearchNote_20_Zelin.pdf
3
http://mobile.businessweek.com/articles/2014
http://mobile.businessweek.com/articles/2014-06-20/iraqsisil-jihadists-want-an-oil-state-of-their-own-too
too
4
http://www.theguardian.com/world/2014/jun/15/iraq
http://www.theguardian.com/world/2014/jun/15/iraq-isisarrest-jihadists-wealth-power
5
http://country.eiu.com/article.aspx?articleid=121947196&Cou
ntry=Iraq&topic=Economy
Gus Constantinou is a Research
Associate at EUCERS and completing
an MA in International Peace and
Security
at
the
War
Studies
Department of King’s College, London,
focusing on energy security.
You can follow him at @gus_c13
Though ISIS doesn’t control the major oilfields in the south
of Iraq, nor the Kurdish regions, it does control the refinery
at Baiji, which produces nearly one-third
one
of Iraq's oil
products, and the export pipeline from Kirkuk to Turkey
passes through ISIS-gained
gained territory. Though it may lack the
capacity to fully take advantage of such resources, ISIS has
used them to increase independent funding and play the
rolee of spoiler for future development.
The ISIS advance has also highlighted the need for
rethinking the status of the KRG. Known for already having
a semi-autonomous
autonomous government and a disciplined
peshmerga fighting force, a return to a status quo before the
th
ISIS attack seems unlikely. However, the ongoing dispute
between Baghdad and Erbil over oil-export
oil
rights and
revenues, specifically the KRG’s 17% ‘take’ from the national
budget, complicates the role the KRG will play in Iraq’s
future. Indeed, a completed
ed and controversial pipeline that
connects at the Turkish border with the Turkish section of
the Kirkuk-Ceyhan
Ceyhan pipeline was completed in January. Built
with ‘a potential 1m-b/d
b/d capacity, above the current
production rate of KRG fields of about 250,000 b/d,
b/d it
happens to connect with Kirkuk already…it is likely that at
least 200,000 b/d of crude could be channelled through this
route.6‘
Though Baghdad has argued that the KRG could keep any
revenue it gained from this export, it would also be less than
the estimated $14 billion it would receive from its 17% take
from the national Iraqi budget – a percentage KRG officials
have said they were never close to receiving anyway. The
KRG would, however, have autonomous control of energy
exports and finances. The debate is a heated one and has
served to heighten Baghdad’s fears of Kurdish annexation of
Kirkuk and a declaration of independence amidst the chaos
created by ISIS.
The implications of the above turn of events were therefore
quite startling and dramatic not only for their speed, but
also for their impact on the states of the region and its
6
Ibid.
Page 7
energy prospects. The panel, therefore, wasted no time and
delved into these accordingly.
Indeed, Professor Dr Friedbert Pflüger, Director of EUCERS,
noted that in the dispute between the Kurdish Regional
Government (KRG) and the central government in Baghdad,
the KRG has the territory and organization to play a
stronger hand in negotiations
gotiations with the central Baghdad
government over the allocation of revenues for energy
production, estimating a demand of up to 83% of total
revenues to remain in Baghdad. The Maliki government in
Baghdad would be cognizant of the changing status quo
shifting in favour of the KRG. Furthermore, HE James F.
Jeffrey, former Ambassador to Iraq (2010-2012)
2012) - as with a
recent interview with another King’s College-affiliated
College
publication, War of the Rocks7 - voiced concerns over Iran's
role in the conflict which he considered dangerous as it
could further increase the divide between Shias and Sunnis,
and might lead to a regional civil war from Lebanon to Iran.
(For additional information on the 3rd Roundtable Discussion,
please refer to the event’s report below)
ACTIVITIES
3rd EUCERS/ISD/KAS Talk – Report
Justus Andreas
Due to the recent events in Iraq regarding the threat
through the advance of the Islamic State in Iraq and Syria
(ISIS), the third roundtable discussion on "Iraqi - Kurdistan
Capital of Oil and Gas Exploration – What Does it Mean for
Europe?" which took place on June 17th, 2014 at King's
College London, received special importance and a slight
topical shift in its primary focus of the discussion. The event
was part of the European Centre for Energy Resource
Security's (EUCERS) Energy Talk Series this year dealing
with "Changing Political and Economic Dynamics of Global
Energy Flows",
", which EUCERS hosts together with the
Institute for Strategic Dialogue and the Konrad Adenauer
Foundation (KAS) in the UK. The event was attended by
government representatives, relevant industries, and
members of academia and the media.
The discussion was opened by Hans Hartwig Blomeier,
Blomeier
Director of the KAS, and chaired by Professor Dr Friedbert
Pflüger,, Director of EUCERS. Before giving the floor to the
highly distinguished panel, Professor Pflüger commenced
by outlining the immense potential that the Kurdish region
7
http://warontherocks.com/2014/06/5-questions
questions-withambassador-jeffrey-on-isis-and-iraq/
Justus Andreas is the 2013/14 KAS
Fellow at EUCERS and editor of the
Newsletter. He conducts his research
on the geopolitical and economic
implications of the US drive for energy
independence in the wake of the shale
revolution.
of Iraq was bearing, holding the 10th largest oil reserves and
presumably the 8th to 13th largest natural gas reserves in
the world. Having just been at the Iraq Petroleum 2014
Conference,
e, he pointed out that regarding the dispute
between the Kurdish Regional Government (KRG) and the
central government in Baghdad, the KRG was willing to fulfil
its revenue obligations, demanding for 83% of total
revenues to remain in Baghdad. Also referring
referrin to the current
security crisis caused by ISIS and its domestic Sunni
supporters, Professor Pflüger stressed that the Kurdish
region in the north has remained largely stable and also was
able to take control over the crucial oil producing city of
Kirkuk.
As the first speaker of the panel, Mehmet Sepil, President
of Genel Energy (the first company to produce oil in the
region), reiterated the immense potential of Kurdistan by
stating that from initial drillings in 2002, with virtually zero
production, by 2016 Genel alone aims to produce 1 million
barrels per day. He also stressed his hopes that the current
security crisis could in fact help improve the ties between
the KRG and Baghdad, and renew the cooperation. HE
James F. Jeffrey,, former Ambassador to Iraq
Ir (2010-2012),
voiced similar hopes, however, doubted the ability of the
current constitutional framework to facilitate a solution of
the dispute, as a Western constitution could not simply
overcome historic, cultural, and ethnic identities. Mr Jeffrey
ranked
nked the current events in line with other contemporary
crises in the South East China Sea and Ukraine as general
disputes over the Westphalian System, which pose an
extraordinary challenge and each one entails a central
energy component. He also voiced concerns
co
over Iran's role
in the conflict which he considered dangerous as it could
further increase the divide between Shias and Sunnis, and
might lead to a regional civil war from Lebanon to Iran.
Consequently, Mr Jeffrey outlined crucial next steps which
he considered to be the prevention of a break-up
break
of Iraq
through a new and different agreement between Baghdad
and the KRG, the containment of ISIS, and the facilitation to
move forward politically by inter alia tackling the majoritymajority
minority power dispute.
Shwan Zulal,, Research Associate at EUCERS and CEO of
Carduchi Consulting, is specialized in the oil & gas, mining
and financial sectors in Kurdistan, and criticized the lack of
European engagement in the region, especially from the EU
Page 8
and considering the potential of future energy trade
between the two actors. He pointed out that both gas and
oil could reach the European market via Turkey within the
next 10-15 years, and hinted at the recent exports via the
Ceyhan pipeline, which he considered a vital first step for
Kurdistan to step up as an energy actor. He also stressed
that this act was in part necessary since Baghdad had cut off
the budget for the KRG in January this year, rendering the
Kurdish government highly dependent on external
revenues. Furthermore, Siddik Bakir, Senior Energy Analyst
at IHS London, outlined the diverging power regimes
between national and sub national actors and claimed that
while de jure no breakup of the state had taken place, de
facto Iraq was controlled by four sub national actors, similar
to the situation in Syria, of which the KRG in the north was
gaining the most from the current situation. Considering the
KRG's previous attempts to gain control over Kirkuk, Mr
Bakir is expecting the city to remain in Kurdish hands even
after a potential resolution of the conflict. He finally
considered Turkey the great facilitator, since the country
allowed the KRG to be an actor in its own right by enabling
trade from the region to bypass Baghdad, which in the
future could also supply the European continent. Finally,
Stefan Haid, Consultant at Roland Berger in Erbil, explained
the increase in foreign investments in the city over the past
years, increasingly also from Turkey. He agreed with many
mentioned points, including Turkey's role as a facilitator for
Kurdish ambitions. He nonetheless saw great opportunity
also in the current crisis and considered KRG a highly
responsible actor, which could serve as an anchor of
stability, providing the region with an improved positioning
within the state of Iraq.
Following the various standpoints raised by the panel and
considering the importance of the conflict with ISIS,
Professor Pflüger in his summarising remarks came back to
the initial focus of the talk - the shifting energy flows - and
stressed the fact that the Trans Adriatic Pipeline could be
extended to transport up to 20 billion cubic meters of gas,
which would enable also gas coming from Kurdistan to
reach the market. This naturally had to be considered an
immense opportunity for both Europe as well as the region.
The event was concluded by an open discussion allowing
participants to raise points and questions, which was
followed by a lunch giving everyone another possibility to
exchange opinions and contact details.
4th EUCERS/ISD/KAS Talk – Background
Justus Andreas
As part of this year's Energy-Talks series the European
Centre for Energy and Resource Security (EUCERS) in
cooperation with the Konrad Adenauer Foundation (KAS) in
London and the Institute for Strategic Dialogue (ISD) under
the overall theme of "Changing Political and Economic
Dynamics of Global Energy Flows" is holding the third
roundtable discussion on the topic of "The Implications of
Iran’s Re-integration in Global Energy Markets". The event
will take place on July 3 2014, at King's College London.
With an estimate of 154 billion barrels of oil (about 9% of
total global reserves, 12% of OPEC) and 1,187 trillion cubic
feet (tcf) of natural gas (about 18% of total global reserves),
Iran bears immense potential to impact global oil and
natural gas markets. However, very little of that potential is
currently being exhausted, due to political and consequent
investment reasons.
Iran has been subject to various sanctions regimes since the
1970s, both mandated and non-mandated through the
United Nations Security Council. Sanctions are reasoned by
the US through 'Iran’s continued illicit nuclear activities' and
aimed 'to censure Iran and prevent its further progress in
prohibited nuclear activities, as well as to persuade Tehran
to address the international community’s concerns about its
nuclear program'.
The contemporary US trade sanctions regime against Iran
has been codified through the Comprehensive Iran
Sanctions Accountability and Divestment Act (CISADA) of
2010. The sanctions' targeting of Iran's energy sector is
founded in the country's high reliance on energy revenues,
especially considering oil exports which have constituted
20% of the country's GDP, 80% of its foreign exchange
earnings and about half of government expenditures before
the initiation of oil export sanctions in 2012. These sanctions
were combined with cutting the country's access to the
international banking system, resulting in limited
accumulation of and access to foreign exchange reserves.
Furthermore, sanctions against US investments in Iran's
energy sector not merely banned equity and royalty
arrangements but any contract that included 'responsibility
for the development of petroleum resources of Iran,
including pipelines, and contracts regarding construction,
upgrading or expansions of energy projects'. Consequently,
by late 2013 Iranian oil exports had decreased from 2.5
MMb/d in 2011 to 1MMb/d, the Rial had reached an inflation
rate of 50%, and the Iranian economy had contracted by 5%.
Furthermore, since Iran lacks the refinery capacity to
process its vast domestic crude oil, the country relies on
imports for 30-40% of its gasoline consumption.
Natural gas as a good has been relatively unsanctioned, with
only the EU directly targeting Iranian natural gas exports.
However, the lack of foreign investment and adequate
financing has caused a slow growth in the country's natural
Page 9
gas production and its high inefficiency. The sanctions
regimes are also crucial for the absence of a single
operational LNG export facility in Iran, despite its
continuous aspiration to enter the global LNG market since
the 1970's. The absence of any LNG development is
essentially caused by the fact that the necessary technology
to construct and operate LNG terminals is patented by US
firms and is therefore inherently unavailable for sale to Iran.
Furthermore, CISADA sanctioned LNG investments and the
supply of LNG tankers or pipelines to Iran.
Following the detrimental effects of the continuous sanction
regimes, Iran's leaders agreed to a Joint Plan of Action on
November 23, 2013, agreeing to the initiation of
negotiations to formulate a agreement for Iran's peaceful
utilisation of nuclear power and including the country's
termination of its nuclear weapons and WMD programs.
Should these negotiations be successful, and international
sanction regimes against Iran be lifted, the country is likely
to, however, still need several years to develop significant
export capacity, combined with vast capital investments.
A return of Iran to the gas market could, nonetheless, have
immense global price implications, as the country is
geographically well-situated to supply both Asian and
European markets. Generally, about 80% of Iranian gas
reserves are located in non-associated fields, most of which
are not yet developed. The bulk of these fields are located
offshore, however the country also produces significant
associated natural gas through its onshore oil fields.
Nonetheless, about 35% of total Iranian natural gas output
stems from the South Pars fields, which are only partly in
Iranian territory, but hold about 27% of Iranian reserves. Of
the in 2011 overall produced natural gas (7.9 tcf), about 67%
is marketed primarily to Turkey, Armenia, and Azerbaijan,
with 16% (1.2 tcf) being re-injected to enhance oil recovery.
The remaining 0.6tcf or 17% are lost in shrinkage and
flaring, an indicator for the state of the Iranian energy
infrastructure and harm done through the sanction regimes.
Geopolitically, any greater role of Iranian gas for the
European market could severely undermine Russian market
dominance. As Russia, however, remains one of the few
allies of the Iranian government, such a development could
strain the relationship between Tehran and Moscow.
Sources:
Congressional Research Service (2014), Iran Sanctions
https://www.fas.org/sgp/crs/mideast/RS20871.pdf
EIA- Energy Information Administration (2014), Iran
http://www.eia.gov/countries/cab.cfm?fips=IR
http://www.state.gov/e/eb/tfs/spi/iran/index.htm
DISCLAIMER
The views expressed in this Newsletter are strictly
those of the authors and do not necessarily reflect
those of the European Centre for Energy and
Resource Security (EUCERS), its affiliates or King’s
College London.
ANNOUNCEMENT
EUCERS/ISD/KAS Energy Talks:
The Implications of Iran’s Re-integration in Global Energy
Markets
3 July 2014, 14.00 - 16.00, with a reception following ♦ War
Studies
Meeting
Room,
sixth
floor
♦
King’s College London ♦ Strand Campus ♦ London WC2R
2LS
Welcome Address and Introduction:
Sasha Havlicek, CEO, Institute for Strategic Dialogue (ISD)
Hans-Hartwig Blomeier, Director London Office, KonradAdenauer-Foundation (KAS)
Professor Dr Friedbert Pflüger, Director, EUCERS King’s
College London
Confirmed Speakers include:
Elham Hassanzadeh, Research Fellow at the Oxford
Institute for Energy Studies, currently writing a book on the
Iranian Natural Gas Industry
Mahdi Kazemzadeh, Managing Director, Afraz Advisors
Ltd. and Energy Business Advisor, Energy Technologies
Institute
Siddik Bakir, Senior Energy Analyst, Middle East, Turkey
and South Asia, Oil and Gas Risk Service (OGRS), IHS
ENERGY
Dmitry Zhdannikov, EMEA Energy editor, Reuters News
Chris Cook, Senior Research Fellow, UCL Institute for
Security and Resilience Studies
Dr Frank Umbach, Research Director EUCERS, King’s
College London
The workshop is followed by a Reception in the Small
Somerset House Room
If you have any further questions, please contact Carola
Gegenbauer at [email protected] or call +44
20 7848-1912
U.S. Department of State (2014), Iran Sanctions
Page 10
We are very happy to welcome Professor Theo Farrell as our
new chairman of the board. He is Head of the Department
of War Studies and Professor of War in the Modern World at
King’s College London, as well as Chair of the British
International Studies Association.
We are also very excited that our Summer Programmes are
about to start. EUCERS Executive Energy Seminar (EEES)
on International Energy Markets will take place from June
30th until July 4th, while the Summer School on Global
Energy Politics will commence on July 27th, as part of the
King’s College London Summer School program.
EUCERS ON THE ROAD
Our team represents EUCERS at various conferences and
events all over the world. This section gives a regular update
and overview of conferences and interview contributions by
EUCERS Director Professor Dr Friedbert Pflüger, Associate
Director Dr Frank Umbach and Research Director Dr Petra
Dolata.
25.06.2014
Berlin,
Germany
25.06.2014
Berlin,
Germany
24.06.2014
London, UK
18.06.2014
London, UK
17.06.2014
London, UK
Friedbert spoke on “The market is (not)
always right – How are energy traders
handling the global changes in the energy
industry?” at the annual conference of
the German Federal Association of the
Energy and Water Industry (BDEW).
Frank presented on „Kohle – Keine Rolle
im Klimaschutz?“ (Coal – No Role in
Climate Protection?“), at the AlstomECONSENSE:
Forum
Nachhaltige
Entwicklung der Deutschen Wirtschaft –
Nachhaltigkeitsstammtisch.
The Energy Systems Conference was held
in London and Friedbert chaired the
session on moving towards circular
economies.
The Iraq Petroleum Conference 2014 took
place in London and Friedbert was
Chairman of Keynote given by H.E Dr
Ashti Hawrami, Minister of Natural
Resources,
Kurdistan
Regional
Government, Iraq.
The third EUCERS/ISD/KAS Workshop
discussed “Iraqi-Kurdistan: Capital of Oil
and Gas Exploration - What does it mean
for Europe?” where Friedbert gave a
presentation and chaired the panel.
17.06.2014
Hannover,
Germany
16.06.2014
London,
UK
05.06.2014
Berlin,
Germany
28.05.2014
Berlin,
Germany
21.05.2014
Brussels,
Belgium
20.05.2014
Brussels,
Belgium
Frank gave two presentations on „EUEnergiebinnenmarkt:
Stand
und
strategische Perspektiven“ („EU-Internal
Market: Present Situation and Strategic
Perspectives“) and „EU- Klimaschutzstrategie: Stand und Perspektiven“ („EUClimate Protection Strategy: Present
Situation and Perspectives“) at a meeting
of the municipal utilites ‘Stadtwerke
Hannover AG/Enercity’.
Friedbert was chair to the one day Iraq
Power Conference, which discussed “Post
Elections Opportunities to Integrate
Electrical Generation Into New Business
Models”
The German paper “Die Zeit” organized a
conference on “The Future City”/
Friedbert presented on “Energy Supply
and Efficiency in the City of the Future”.
On 28 May 2014 the Munich Security
Conference jointly with Frankfurter
Allgemeine Zeitung organized the Energy
Security Summit 2014, to which EUCERS
was academic partner. Friedbert spoke in
the panel on “Regional Crossroads – New
Energy Resources For Europe?”
Frank presented on “The Mediterranean
Solar Plan” at the EuroMed-Information
and Training Seminar for Diplomats
“Perspectives for Cooperation in the
Euro-Mediterranean Region” at the
European
Institute
for
Public
Administration (EIPA).
Frank was a commentator to the report:
“Three Years of Ukraine’s Membership in
European Energy Community” (DiXi
Group, Kiev) at the Expert Workshop
“Enhancing European Energy Security
Through EU-Ukraine Cooperation” by the
Konrad Adenauer Foundation - European
Office.
PUBLICATIONS
Dr Frank Umbach shares with us his most recent
publications and interviews:
Frank published on “Russia’s Gamble over Crimea Could
Deliver Major Energy Rewards and Influence” with the
Geopolitical Information Service (GIS - www.geopoliticalinfo.com), on 23 June 2014, 4 pp.
Page 11
Frank gave an interview with Joshua Posaner & James
Byrne, on the topic of ‘Russia Secretly Sabotaging EU Shale
Gas – NATO’, for Interfax-Natural
Natural Gas Daily, on 20 June
2014, p. 6.
SOCIAL MEDIA
Follow @eucers on Twitter
Frank wrote on “EU Can Beat Russia’s Threat of New Gas
Supply Cuts” in Geopolitical Information Service (GIS www.geopolitical-info.com), on 16 June 2014, 4 pp.
Like us on Facebook!
Frank published on the topic of „U.S. LNG to the Rescue of
Europe? Does a Decision
sion on LNG Exports to Europe Really
Matter?” in Energlobe (http://energlobe.eu/politics/us-lng(http://energlobe.eu/politics/us
exports-to-the-rescue-of-europe) on 13 June 2014.
CONTACT EUCERS
Frank published in the German Wirtschaftswoche on
“Provinzielle Debatte” („Provincial Debate [on Indigneous
Shale
ale Gas Production]), No. 23, 2 June 2014, p. 41.
If you have found our Newsletter interesting, wish to
hear more about our activities, or, indeed, contribute
with ideas or essays, please contact Carola
Gegenbauer, Operations Coordinator EUCERS on
[email protected]
[email protected] or call 020 7848 1912.
Frank gave an interview with Sandra Tjong on ‘Neue
Blockbildung in Europa: Bastelt Putin an einer Sowjetunion
light?’ („New Block Building in Europe: Is Putin Creating a
Soviet Union Light?”) for the German Focus (News Journal),
on 30 May 2014.
Frank published two articles with the NATO-Review
NATO
(“Energy Security: What Can NATO Do?”) on 28 May 2014.
One with the title of “Russian-Ukrainian
Ukrainian Gas Conflict: Who
Stands to Lose Most?”” and the other called “The Energy
Dimension of Russia’s Annexation of Crimea”.
Crimea” Please find
the respective links below:
http://www.nato.int/docu/review/2014/NATO
http://www.nato.int/docu/review/2014/NATO-Energysecurity-running-on-empty/Ukrainian-conflict
conflict-Russiaannexation-of-Crimea/EN/index.htm
http://www.nato.int/docu/review/2014/NATO
http://www.nato.int/docu/review/2014/NATO-Energysecurity-running-on-empty/Ukraine-energy
energy-independencegas-dependence-on-Russia/EN/index.htm
Frank gave an interview for Natural Gas Asia on 8 May,
2014, on “Asia’s
Asia’s Gas Market Set to Become World’s Second
Largest by 2015”.
Page 12
EUCERS ADVISORY BOARD
The EUCERS Advisory Board supports the activities of
EUCERS King’s College London. We would like to thank
and present the members of the board.
Professor Theo Farrell, Chairman of the Board,
Head of War Studies Department and Professor of War
in the Modern World, King’s College London
Marco Arcelli, Executive Vice President, Upstream
Gas, Enel, Rom
Professor Dr Hüseyin Bagci, Department Chair of
International Relations, Middle East Technical
University Inonu Bulvari, Ankara
Andrew Bartlett, Head Oil & Gas, Helios Investment
Partners, London
Professor Dr Albert Bressand, Professor in
International Strategic Management in Energy,
University of Groningen
Professor Dr Iulian Chifu, Advisor to the Romanian
President for Strategic Affairs, Security and Foreign
Policy and President of the Center for Conflict
Prevention and Early Warning, Bucharest
Ilya Kochevrin, Executive Director of Gazprom
Export Ltd
Janusz Luks, CEO Central Europe Energy Partners
(CEEP), Brussels/Warsaw
Thierry de Montbrial, Founder and President of the
Institute Français des Relations Internationales (IFRI),
Paris
Chris Mottershead, Vice-Principal
Development), King's College London
(Research
&
Hildegard Müller, Chair of the Executive Board of
the German Association of Energy and Water Industry
(BDEW) and member of the Executive Committee
Dr Pierre Noël, Director Energy Policy Forum, Judge
Business School, University of Cambridge
Dr Ligia Noronha, Director Resources, Regulation
and Global Security, TERI, New Delhi
Dr John Chipman, Director of the International
Institute for Strategic Studies (IISS), London
Deepak Puri, Chairman & Managing Director, Moser
Baer India Ltd., Delhi
Professor Mervyn Frost, Professor of International
Relations, Department of War Studies, King's College
London
Janusz Reiter, Center for International Relations,
Warsaw
Professor Dr Dieter Helm, University of Oxford
Professor Dr Karl Kaiser, Director of the Program
on Transatlantic Relations of the Weatherhead Center
for International Affairs, Harvard Kennedy School,
Cambridge, USA
Professor Dr Karl Rose, Senior Fellow Scenarios,
World Energy Council, Vienna/London
Professor Dr Burkhard Schwenker, Chairman of
the Supervisory Board, Roland Berger Strategy
Consultants GmbH, Hamburg
Frederick Kempe, President and CEO, Atlantic
Council, Washington, D.C., USA
Page 13
ACKNOWLEDGEMENTS
We would
Supporters
like
to
thank
our
Partners
and
And our Media Partners:
Page 14