Energy Journal - Issue 2

Issue 02, March 201 7 Š LSE SU Energy Society www.lseenergy.wordpress.com lsesuenergysociety@gmail.com London School of Economics Students' Union 1 Sheffield St, London WC2A 2AP Cover illustration: iStock.com/Davizro Dominici Werbeagentur Image attribution: The Good, the Bad and the Ugly (p. 8): Physicsfrontline.aps.org Facing an Uncertain Political Climate (p.1 5): Inhabitat.org Elon Musk (p.1 9): Tesla, AP/Sakuma Saving Areva (p.22): Pexels Saudia Arabia: A War of Attrition? (p.25): Caves.co.uk A Necessary Friendship (p. 37): NY Times

Dear Reader, We are living in turbulent times. The rise of populism and right-wing parties across Europe, Britain’s decision to leave the European Union and the recent election of Donald Trump as President of the United States have come as a shock to many. There is no doubt that a changing political landscape will have consequences for the energy sector and add further uncertainty to the energy transition. Across the world, governments determine the power mix through regulating certain industries and subsidising companies. The most prominent example comes from the U.S. where Trump’s America First Energy Plan of supporting conventional energy sources stands in contrast to the clean energy policies of the Obama administration.

In Energy & Politics our writers take a look at the role that politics plays in the transition towards cleaner sources of energy. Bojan Bogomirović investigates the different approaches of left-wing and right-wing politics towards energy policy-making and argues to depart political one-sidedness. Nathanael Didillon compares the role of nuclear energy in France, Japan and Germany. Nicole Pavia examines the success of the Beyond Coal campaign in the U.S. to decrease dependence on coal for power generation. Sean Kiely explores the potential for wind energy in the U.S. despite the uncertainty for renewables due to the Trump administration. Roberto Tabet looks at the role of Saudi Arabia as an energy producer and political actor and how it has changed since the slump in oil prices that started in 201 4. Chris Westling’s article complements this well by exploring opportunities for solar energy in Saudi Arabia and the neighbouring Gulf states.

Make sure to take a look at “Elon Musk and the Quest for a Sustainable Future” where Constantinos Los introduces you to one of the most influential entrepreneurs of our time.

Much is at stake in Raphaela Kotsch’s article about drilling in the Arctic where she highlights the recent development in this area. Damian Virchow takes a look at a new business opportunity for African countries: Pay-as-you-go solar power. If you are interested in how the U.S.-Mexican relation in the oil market will play out under Trump, make sure to read through Fernando Ramones’ article.

I am delighted to include three guest articles in this issue.

Lucile Fleuret and Petar Georgiev from the College of Europe in Belgium take a closer look at strategic decisions in the EU energy supply. Finally, Kazuki Hao from the Kyoto University in Japan adds an Asian perspective to our issue by looking at the state of renewable energy in Vietnam.

Enjoy,

Simon Loschnauer Editor-in-Chief Lent Term 2017

Liquefied natural gas is natural gas that has been cooled to a temperature of around -1 63°C, at which point it becomes liquid. Since LNG occupies 600 times less space than the gas itself it is possible to ship it over very large distances. This is done by special LNG tankers which move the gas from regions where it is produced to those where it is consumed. Once the gas arrives at the LNG terminal it is stored in cryogenic tanks and later re-gasified and pumped into the transmission network to meet the needs of customers.

Amid declining North Sea gas production and rising demand for gas in Europe, LNG is becoming increasingly important as a source of supply. Last year, utility provider EDF Energy started operating a new facility in Dunkerque, France, and Swiss commodity trading house Trafigura is looking to reopen an import terminal in North-East England.

The global LNG market is expanding rapidly.

Capacities for liquefying natural gas have been increasing over the last years with the most recent installations coming from Australia and the U.S. As LNG supply is increasing many cargoes are now sold on a spot basis and are no longer linked to long term contracts, thereby increasingly putting pressure on traditional gas markets.

Contents 8

The Good, the Bad and the Ugly

12

Offthe (Left) Track?

15

Facing an Uncertain Political Climate: Wind Energy in the U.S.

by Nathanael Didillon

by Bojan Bogomirović

by Sean Kiely

17

Beyond Coal

19

Elon Musk and the Quest for a Sustainable Future

by Nicole Pavia

by Constantinos Los

Guest Column Saving Areva: Too Late to Save a Sinking Ship?

by Lucile Fleuret

p. 22 Between Deadlock and Breakthrough EU-Azerbaijan Trade Negotiation Process

25

Saudi Arabia: A War ofAttrition?

by Petar Georgiev

27

Rising Temperatures - Rising Stakes

p. 30

32

Pay as You Power

35

A Bright Future for GCC Energy

37

A Necessary Friendship: The U.S.-Mexican Oil Market

by Roberto Tabet

by Raphaela Kotsch

by Damian Virchow

by Chris Westling

by Fernando Ramones

Arctic Energy Resources

p. 11

Solar Field Trip

p. 13

Renewable Energy in Emerging Economies: The Case of Vietnam

by Kazuki Hao

p. 38

ESCP Europe Energy Trading Challenge

p. 16

The Good, the Bad and the Ugly A Comparison ofNuclear Energy in France, Japan and Germany

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uclear energy is not without its contradictions: some acknowledge it as a ‘green’ form of energy — it releases relatively small quantities of greenhouse gases (GHG), compared to coal or gas. Yet, others are very concerned about the long-term impact of nuclear waste on the environment — it may be difficult to ensure that it does not contaminate the soil or ground water. Similarly, nuclear energy is widely praised for its tremendous capacity and reliable electricity generation. Nevertheless, catastrophic events — Chernobyl, Three Mile Island, Fukushima — question the safety of nuclear power plants, in addition to the disruption of uranium supplies due to geopolitical tensions. Nuclear energy is controversial, and over the years countries have adopted different positions: Germany had passed a law in June 2011 to step out of nuclear energy — die Energiewende — whereas Japan has restarted most of the plants shut down since the Fukushima accident in March 2011, and France is maintaining heavy investment in new nuclear technology. With all this in mind, what are the main reasons behind these divergent national nuclear policies?

Germany: The Ugly In 2015, 14% of electricity generated in Germany originated from nuclear power plants (Figure 1). This is coherent with the Energiewende law passed in the aftermath of the Fukushima accident. Voted in June 2011, “the law mandated a phase-out of all remaining nuclear power plants by 2022. In addition, the new law included provisions to reduce the share of fossil fuel from over 80% in 2011 to 20% in 2050. Energy efficiency was to be increased by 40% compared to the average efficiency rates of 1990. The reactors shut down immediately after the accident, (have) remained closed” (Renn and Marshall 2016).

Such a radical decision has its roots in the grassroots antinuclear weapon movement that emerged in the 1970s in West Germany. Demonstrations crystallised in the early 1980s against the installation of the Pershing II ballistic missiles in West Germany, which jeopardised the very existence of Germany in the case of the breaking of war between the US and the USSR. These missiles — able to carry the H bomb — represented a direct threat to the population as well as an indirect threat to possible reunification in the longer-term. Opposition to nuclear energy was fuelled by pacifism and patriotism.

Protests have also emerged against civil nuclear technology.

The German environmental movement has been able to capitalise on the 1986 Chernobyl accident to create a rooted distrust of any form of nuclear energy. The accident heavily impacted public opinion and triggered substantial policy change by the federal government: “The most obvious change was the establishment of the BMU, the federal ministry for environment, nature conservation and reactor safety” (Renn and Marshall 2016). Symbolically, nuclear energy was no longer a prerogative of the Interior Ministry; it posed a threat to the environment of Germany.

A further reason for the recent decision to phase-out nuclear energy in Germany is the limited role that it plays in national energy security. In fact, it is coal (lignite) that has historically been the national energy resource and guaranteed reliable energy to German households and industry. This is why lignite has been excluded from the 2018 coal phase-out plan. However, coal still holds widespread political support: the socialist party (SPD) is strongly supported by coal industry trade unions — the industry still employed approximately 120,000 workers in 2015 — and the conservative Christian Democratic Party has close ties with the coal lobby. As a result, the subsidies received by the federal state between 1970 and 2014 have totaled EUR 327 billion. Simply, nuclear energy takes a back seat to coal, and is not a priority of the German government.

Japan: The Bad Why did nuclear only account for 1% of electricity generated in Japan in 2014 (Figure 2)?

At first glance, it should come as no surprise that nuclear energy in Japan accounts for a marginal share of electricity generation in 2014. Indeed, Japan is the only country in the

the Soviet Union was the main headache during the Cold War, China has since emerged as the ‘new’ danger in the 2000s, making energy security and military self-defence more important than in the previous decade. Such survival of a strong ‘Cold War mentality’ (Takemoto 2015) has legitimised considerable government-backed investments in civil nuclear energy such as fast breeder reactor technology from Mitsubishi Heavy Industries.

world to have suffered from both the atom bomb in 1944 (Hiroshima and Nagasaki) and the explosion of a civil nuclear power plant, Fukushima in March 2011. The trauma still pervades the Japanese society, with the memory of such catastrophe maintained alive in Hiroshima by the hibakusha, survivors of the A bomb. No surprise either that all nuclear power plants were cautiously shut down after the Fukushima accident.

It may be surprising that most nuclear power plants have since been restarted, and that Japan has no plan to significantly turn its back to this form of energy. The first reason is that the anti-nuclear movement has remained marginal and divided. Unlike in Germany, the movement has distinguished between military and civil forms of nuclear technology, and has therefore mainly emphasised the ‘peace-building’ role of Japan, with particular opposition to the proliferation of atomic weapons. Moreover, the movement has neither managed to gather large political support, with the concern being restricted to left-wing parties, which themselves have not been unanimous: the anti-nuclear movement “is regarded as a failed movement because of the split of both left parties, the Social Democratic Party and the Communist Party” (Takemoto 2015).

Japan is the only country to have suffered from both the atom bomb in 1944 and the explosion ofa civil nuclear power plant Nuclear energy in Japan still plays a considerable geopolitical role. Since World War II, Japan is under the nuclear umbrella of the U.S. Directly opposing nuclear energy would therefore be considered to seriously threaten national security — in striking contrast to Germany. While

After Fukushima, Japan had initially shut down its nuclear power plants because of the new nuclear trauma felt by the population. Yet, it started most of the plants again, since only the use of nuclear energy for military purposes is considered immoral by the majority of the population.

Current geopolitical reasons have reinforced further incentives to depend less on the imports of fossil fuels, and diversify the Total Primary Energy Supply (TPES).

France: The Good In sharp contrast to Japan, why is 78% of French electricity generated by nuclear power plants (Figure 3)?

In France, nuclear energy is considered a strategic asset in

ensuring energy independence. It has been developed to palliate the limited availability of domestic fossil fuels, and avoid the great vulnerability of the French economy to exogenous oil crises, especially the first one in 1973-1974.

The Messmer Plan launched heavy public investments in developing civil nuclear energy, with the moto, “in France, we do not have oil, but we have ideas” (Lehman et al. 2015).

Nuclear energy is therefore associated with national prestige and sovereignty.

Nuclear energy has grown so important that considerable economic, technological, public — and even social — interests are now vested in the sector. It employs tens of thousands of engineers and technicians, a reason why the political left (communists and socialists) has traditionally supported nuclear energy. In fact, like the coal industry in Germany, the nuclear sector has reached consensus among the French political and private elite, with the return on the initial development investments benefiting the industry and the households in the form of reliable electricity at low costs, and employment for highly skilled engineers. Indeed the government receives important, albeit what have recently been declining dividends from EDF and Areva, the electricity provider and nuclear giant.

Unlike in Germany, nuclear energy is deemed fully compatible with environmental concerns. In fact, it appears to be an effective ally in the effort to reduce Green House Gas (GHG) emissions, especially when compared to coalfired power plants. To many, cutting emissions seems more important than preventing nuclear contamination, in part due to nuclear being widely perceived as safe. In this respect, the Fukushima accident had only a marginal impact on the nuclear landscape in France: Unlike in Germany and Japan, no power plant was subsequently shut down. Special advisors to the French government recommended that the Authority for Nuclear Safety (ASN) upgrade some of its defence. And despite some costs — electricity costs increase from 59-83 €/MWh to 76-117 €/MWh, nuclear energy remains relatively cheap.

After this brief overview, more questions than answers remain. How will Germany manage to stick to its GHG emission reduction targets without nuclear power? How can the Japanese government ensure safe nuclear power plants after the unexpected happened? And will the French have the financial capacity to maintain the existing nuclear infrastructure and go ahead with the construction of multibillion euro EPR nuclear plants which are yet unfinished?

Nuclear energy — fission, as fusion is yet science-fiction — is the story of a paradox, and a blend of the good, the bad and the ugly.

Offthe (Left) Track?

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olitical one-sidedness has become a major feature of present-day environmentalism. Without a doubt, the left (both in the political and 'cultural' sense) is clearly at the wheel and setting its course in the spheres of policy-making and publicity. The prevailing left-wing narrative of the green movement has led many of both politicians and everyday people situated rightwards of the centre on the political spectrum to be sceptical, opposing it and even denying the underlying assumptions such as global warming. However, is this the right way to go? Can environmentalism solely exist and prosper in the left-wing sector? Or could this seclusion deter potential right-wing environmentalists and turn out to be detrimental to the progress of environmental protection?

As often argued by its opponents, the environmental movement is supposed to serve as a cloak for the advance and implementation of a socio-liberal and progressive ideology and in some cases even socialism, so called ecosocialism. While certainly being a hasty generalisation, there seems to be a correlation between the typical environmentalist and this philosophy in the public perception. For example, the majority of green parties across the globe, considered the advocates of the environmental movement, adapt distinct leftist views and policies.

These circumstances entail difficulties and problems according to right-wingers such as Roger Scruton, a wellknown British philosopher and conservative. The left-wing approach, he argues, is characterised by serious shortcomings, e. g. with regards to the role of the government, typically emphasised by the left.

Referring to the example of post-war Britain suffering from major river pollution, Scruton shows why state control may not be as beneficial as claimed. During the first two decades succeeding the war, the private initiative of the Anglers' Cooperative Association managed to decrease the pollution and burden on rivers exerted by the state-owned energy industry (in particular the Consett Iron Company) by claiming for an injunction against the companies. Scruton's main criticisms of focusing on government intervention as main solution are the lacking independent control of these big governmental institutions and its feasibility.

Firstly, the resulting immense bureaucracy required for governing poses significant challenges in effectively protecting the environment. Secondly, and more importantly, the leftist environmental movement focuses on the issue of fighting the 'big players' who cause environmental damage by creating even larger institutions above them. Given their influential and diverging positions, this proves unfeasible and is predetermined to fail. Scruton draws on international treaties, e. g. the Kyoto Protocol, as example of such 'global governance'. Usually being of rather negligible success and often representing a mere 'PR activity', Scruton argues treaties can only be of use if signed by lawabiding countries. Among others, this is not the case for China, one of the biggest polluters currently. He favours a more intrinsic approach, rather than the left-wing external one, in order to empower the 'little' to hold accountable those actors externalising their environmental costs. Scruton supports real free market solutions that force every economic agent to bare the costs of their own actions, for example the establishment and refining of private property rights.

In addition, Scruton stresses the need for the promotion of environmental patriotism in order to address those unsupportive and sceptical of the dominating leftist narrative – a concept ignored by the modern green movement. This would create a national feeling for one's own environment, motivating to care for it and popularising the issue.

Especially with the current rise of the new European right, this could pose a major possibility.

It appears easier to act within the existing structures rather than impose changes from outside The frequently stated unsuitability of the right-wing for environmentalism can be found in its 'blind faith' in capitalism deemed as incompatible with environmental protection by many on the left side of the spectrum. Indeed, the right does support a more unrestricted form of capitalism. The debate whether capitalism promotes or obstructs environmental action, however, is a topic of heated

debate with arguments for and against and is probably the single most crucial issue determining the environment's future. On the one hand, capitalism could contribute to the current situation by exploiting it and finding profitable solutions. In the wake of environmental problems, some argue sustainability-focused businesses will eventually drive unsustainable corporations out of the market due to the gradually evolving competitive advantage combined with social pressure and the opening of new and increasingly affordable economic opportunities (such as renewables). In short, making profit with cleaning up. On the other hand, the left would argue that the very same profit-centred approach has led to this situation and there is no guarantee for its success. The list could be extended to topics such as technology, private property rights etc., all of which feature distinctive pros and cons from both political sides. Their success has yet to be seen at this point.

The growing right-wing sector in the West sees its national sovereignty, economic and individual freedom threatened by left environmentalism and some of its proposed policies: more state, more taxes, less or even negative growth and international treaties. The resulting implication from this is that the left-dominated environmentalist movement would do well to include and consider adapting right-leaning market solutions to achieve the needed support of the right.

As for capitalism, it is profoundly established in our society.

Drastically diverting from it appears more than just idealistic, especially given the urgency of action against global warming.

A more opportunistic strategy is required - it appears easier to act within the existing structures rather than impose changes from outside.

So far, we have looked at the underlying theory. In practice, the situation seems to be even more complicated. Climate scepticism and anti-environmentalism is at its peak in the United States. According to Gallup studies, the overall environmental concern (phrased in the terms of 'personal worry') in the period of 1990-2010 decreased noticeably (Figure 1). Virtually no difference regarding the concern for a variety of environmental problems separated Democratic and Republican voters in 1990. In particular, global warming appeared as a collective, but comparatively unimportant issue. Over the next 20 years, Republicans' concern decreases in every section, whereas that for Democrats either increases or stagnates. Deborah Lynn Guber, associate professor at the University of Vermont, links this development to the growing partisan polarisation of environmentalism in the US. The public's response will prove homogeneous if the political elite's stance on a topic converges, and will be ideological in the case of political disagreement in reverse. This partisanship is most noticeable at the example of global warming. But what could the reasons for this development be? Many Republicans

SOLAR FIELD TRIP

In Week 5, members ofour society as well as students from the LSE Department of Geography and Environment braved the cold to visit the floating solar PV array at the Queen Elizabeth II Storage Reservoir. Guided by Thames Water staffmembers David and Laura, they explored how the project and its sibling (a ground-mounted PV installation) delivered clean energy to the water treatment works, as well as the daily challenges faced by the water/waste network in Greater London in ensuring the strategic, accurate and smooth pumping ofthe Thames. They concluded that while the PV project positively contributes to the finances and visibility ofThames Water, it faces obstacles that prevents the project from being widely reproduced, such as low feedin tariffs, the difficulty in raising external funding to offset risk, and the technical constraints offluctuating power generation inherent to solar PV.

The Republicans' environmental record has started relatively good, but took a big turn for the worse. Over the last decades, the U.S. has experienced a few Republican initiatives with regards to environmental protection. Richard Nixon, a Republican and 37th U.S. president, amongst other things formed the Environmental Protection Agency (EPA) in 1970, an independent government agency, whose fields of influence include drinking water, sewage treatment, waste disposal and global warming. With its help, Nixon pushed for the Clean Air Act in the same year allowing for a significant improvement of the air quality. Whether his true motivations were personal or just political remains disputed.

Apart from other minor contributors such as Arnold Schwarzenegger, the Republicans' environmental 'performance' started changing under Ronald Reagan and worsened considerably under George W. Bush.

associate the current environmentalist movement with leftism, they see it as a big and scary plot to install ecosocialism, jeopardising jobs, prices, capitalism and as a result the American freedom. The Rio Earth Summit in 1992 marks the critical turning point of the Republicans' environmental politics. With the fall of communism after the Revolutions of 1989, Socialists started emerging as the leaders of the Earth Summit and hence the environmental movement according to the Republicans. The 'Red Scare' became the 'Green Scare'. On top of that, the subsequent and still on-going left-wing paradigm focusing on policies including nationalisation, heavy regulation of corporations and cuts on military spending has helped to keep the process going. Counteracting the Republicans' anti-environmentalism by bringing them closer to the issue would be desirable, yet the U.S. environmental movement does the exact opposite with the Green Party of the U.S. officially declaring itself as 'eco-socialist' in 2016.

Trump's aversion to renewables may prove to be 'un-American' after all The fact that more and more millennials declare themselves as 'socialist' while at the same time being fierce advocates of the environment only worsens the situation. It seems as if the left is (deliberately or not) thwarting depolarisation.

This is apparently set to continue with Trump's presidency.

One of his aims is to eliminate the Climate Action Plan, which includes a cut to carbon pollution, investments in renewables and combatting climate change, as well as the Clean Water Rule, which protects the waters and wetlands.

Trump's 'America First Energy Plan' focuses solely on the domestic shale oil and gas revolution, but completely ignores the growing green energy sector. According to the International Renewable Energy Agency (IRENA), solar employment has been expanding constantly in the U.S. with growth rates of 22% from 2015-16 and 209,000 employees in 2015. In comparison, the coal production employment has hit an all-time low and decreased by 12% in the period of 2014-15 according to the US Energy Information Administration. The same goes for the oil and gas extraction industry: According to the Bureau of Labour Statistics employment fell to 187,100 in 2015. The lesson is clear: solar employment alone exceeds employment in coal mining and oil and gas extraction. Trump's aversion to renewables may prove to be 'un-American' after all.

No doubt, the current right is far away from saving the planet. But from a certain perspective, so is the left owing to their rigidness. We need to depolarise environmental protection and make it more attractive to the right and give up idealistic and unrealistic expectations for the environment's sake. Being somewhat more reasonable and holding their leading position, it is the left's job to do so.

Facing an Uncertain Political Climate: Wind Energy in the U.S.

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ince the recent American presidential election, the White House’s rhetoric on energy has taken a turn into less certain territory. President Trump campaigned on reviving America’s struggling coal industry while at the same time boosting natural gas production. These two resources compete with each other; cheap natural gas is one reason coal companies are struggling. When it comes to renewable energy, little is known about the policies this administration will pursue. President Trump is on record supporting the wind energy Production Tax Credit during the primaries but he has also called renewables “a big mistake” in his book, Crippled America. His energy secretary, Rick Perry, repeatedly told members of Congress that he supported an “all of the above” energy strategy during his confirmation hearing. In addition, Secretary Perry has also sung praise of potential for large-scale wind energy in his home state of Texas.

It is important to keep in mind that while renewable energy is often framed as a political issue, it is a business one.

Despite some uncertainty in the White House, the Long Island Power Authority accepted a proposal from Deepwater Wind to build America’s largest offshore wind farm this past January (Figure 1). The SouthFork Wind Farm (also called Deepwater One) will be constructed 30 miles off the southern tip of Long Island, New York; its 15 turbines will produce enough intermittent energy to power

50,000 homes. This farm is the first step of New York’s larger “offshore wind master plan” which details how to best take advantage of the state’s immense offshore wind potential. Deepwater Wind is leasing a 256-square-miles of ocean from the federal government which has the capacity for 200 off-shore turbines. Although the project is referred to as Deepwater One, the area in which it is being constructed is actually relatively shallow. In fact, the coast off the Northeastern United States is of immense appeal for wind farm construction because its shallow sea floor extends further out than that of a typical coast line. This allows for wind farms to be constructed further from out the shore where the wind is stronger and more consistent.

This project is expected to cost around $740 million and will rely on the wind Investment Tax Credit (ITC), which begins to phase out in 2019, so there is a ticking clock involved in construction. In 2015, both Republicancontrolled Houses of Congress passed an extension, which was signed by former President Obama. After the expiration of the current ITC, it is unclear whether future wind farms will be able to rely on the government’s support.

In addition to the ITC, wind farms can also take advantage of the Production Tax Credit, which provides tax credits based on the amount of energy generated. The South Fork Wind Farm would benefit from this, provided construction begins by the end of 2019.

There is another government incentive pushing renewable growth, but it is not set by the federal government. State renewable portfolio standards are in place in 29 of 50 states as well as the District of Columbia. These set a target for renewable energy and are legislated by state governments.

According to the MIT Technology Review, they are directly accountable for two-thirds of wind and solar installations in recent years. State governments have been standing up for these requirements and they are unlikely to change under the Trump administration. New York, home of the South Fork Wind Farm, has one of the most ambitious Renewable Portfolio Standards: 50 per cent by 2030.

current construction trends, 2017 may see non-hydro renewable energy exceed 10 per cent of United States energy generation.

This is a major step for the United States, which has yet to realise hardly any of its offshore wind potential; it only has one other operating offshore wind farm. This contrasts with Europe, which has already installed 11 GW of offshore wind capacity. It seems now however that this is beginning to change. In an interview with Forbes Magazine, energy author and businessman Chris Goodall said Trump ‘cannot do very much except simply outright banning things that would move the economy toward renewables.’

That might be difficult for President Trump because support for renewable energy is growing. A Pew Research poll released in October of 2016 entitled, The Politics of Climate, revealed that there is bipartisan support for expanding solar and wind energy. 83 and 89 per cent of respondents were in favour of more wind turbine farms and solar farms, respectively (Figure 2).

Other factors outside the president’s control are natural gas prices and interest rates. However, one of the major proposals from the Trump administration that could drive up interest rates is his infrastructure plan, which itself would likely go to fund many renewable projects. Although the future is always uncertain, right now, companies appear to be comfortable investing in renewable energy. In fact, given

Two teams from the Energy Society at LSE joined the 201 7 Energy Trading Challenge in London hosted by the ESCP Europe Business School in cooperation with the oil & gas trading consultancy Smart Global. Over the course of two days, 26 teams from top universities in the UK and France competed in trading crude oil and refined product futures to find the most profitable trading team. Throughout the challenge, ex-traders from Smart Global provided assistance and gave further insight into the oil trading industry. The two day event was not only a

Photos: ESCP Europe Business School

unique opportunity to find out what it is like working as an energy trader but it also provided a platform to learn from some of the best professionals in the industry. Following the end of the trading day, each session was wrapped up by a panel discussion including such prominent speakers as Ronan Lory, CFO at EDF Trading, or Spyros Gkinis, Global Head of Commodities at BNP Paribas.

The discussions ranged from the role of the oil industry in a changing energy landscape to recent developments and the future of the global LNG market. We are pleased that one of our teams has finished among the Top 1 0 and congratulate the winners from LBS!

Beyond Coal: A Look into a Successful Grassroots Environmental Campagin

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he Trump administration’s energy agenda signals a renewed interest in revitalizing the coal industry, which, per the published plan, “has been hurting for too long.” Indeed, the industry is struggling. The average share of US electricity generated by coal has fallen from 52.8% in 1997 to 33% in 2015, and bankruptcies of coal-burning utilities are commonplace. While several economic and policy factors contribute to the increased cost of coal relative to other energy sources (increased EPA regulations, decline in demand for electricity during the 2008 recession, an abundance of US natural gas reserves, increased public concern around climate change, and renewables costeffectiveness to name a few), a key force in the nationwide shuttering of coal plants has been the Sierra Club’s Beyond Coal campaign. Considered one of the most comprehensive and effective campaigns in the US environmental movement, Beyond Coal formed a powerful coalition of environmentalists, lawyers, and philanthropists and employed a targeted grassroots strategy to reduce emissions in challenging political times.

The Beyond Coal campaign kicked off during the tenure of President George W. Bush, whose administration, like Trump’s today, sought to maximize fossil fuel production.

In 2001, it proposed the construction of 200 new coal-fired power plants. Environmentalists and clean energy activists quickly realised that any effort to stop this construction would require radical changes to existing activism strategy.

The average share ofUS electricity generated by coal has fallen from 52.8% in 1997 to 33% in 2015 According to Michael Noble from the environmental group Fresh Energy, environmentalists had focused on renewable energy development and celebrating renewables successes, but took no direct action against coal-fired plants that generate 71% of electricity-sector CO2 emissions. “If you looked at the problem through the lens of carbon,” Noble

said, “all the work we had done [on renewables] was undone by a single plant¬—a plant that wasn't challenged by a single environmentalist." Further investigation by the Sierra Club in the formative days of the campaign showed little community engagement on this issue, and coal supporters packed public hearings held on plant construction. It was clear that a civicminded, grassroots approach was needed to challenge the administration and industry interests.

In 2004, the Sierra Club first deployed tactics to fight every new coal project from all angles. It held workshops for lawyers, who became proficient in spotting legal vulnerabilities in plant permit language, filing lawsuits, and dismantling grounds for construction in court. The Sierra Club partnered with more than 100 local, regional and national groups to mobilise legal and political action. It also organised volunteers from affected communities to attend public hearings and put pressure on politicians. Critically, the campaign did not focus only on climate change and environmental arguments, but also on economic and public health arguments to which people from all over the country could directly relate. Through dogged legal and outreach efforts, the Sierra Club prevented the construction of 170 of the 200 plants proposed by the administration.

As the campaign officially began to brand itself as Beyond Coal, it leveraged its success into a new effort to shutter old plants still in operation. In the case of these plants, an economic argument was particularly salient – the Sierra Club uncovered legal bases to force plants to install emissionreducing upgrades, and simultaneously informed the public of their potential utility rate hikes in the case that the plant passed on upgrade costs to consumers. Utilisation of federal water and air regulations, as well as public pressure at the local level, led many of the older plants targeted by Beyond Coal to find it too expensive or unpopular to continue operation. In 2011, the former mayor of New York City and

philanthropist Michael Bloomberg donated $50 million to the Beyond Coal campaign, lending legitimacy to the effort and enabling it to expand its reach. As of 2016, the campaign has secured the retirements of 150 existing plants, and each of these plants will replace each watt of coalproduced power with a watt from renewable resources.

While the Beyond Coal campaign has been successful and widely visible, it certainly utilised an increasingly stringent regulatory structure implemented under the Obama administration and the trends in the market for coal to its advantage. However, in just the past month, the US regulatory environment has changed – the term “climate change” has been removed completely from the White House website, an Obama-era regulation preventing coal debris dumping into streams has been overturned, and there is even proposed legislation to eliminate the Environmental Protection Agency. The oil and natural gas industries, which do not suffer from the same regulatory and market pressures as coal does, will be supported at the federal level.

Even in these tumultuous political times, when the United States executive branch appears opposed to strict regulatory oversight of environmental and energy issues, one can look to the following targeted, localised tactics of the Beyond Coal campaign for guidance on how to tackle new plant construction, fracking, or pipeline development: • Connect health and economic arguments into a bigger story about the environment and climate change. Bring in opinions from other fields and publicise a wide range of impacts caused. Provide education and resources on the cost-effectiveness and benefits of renewable energy.

• Invest in the local community and listen to how the issue impacts them. Are their concerns economic, political, personal? Organise people to attend public hearings and encourage them to share personal anecdotes when speaking with representatives. Prepare volunteers and empower them to become local leaders on an issue that is important to them.

• Work closely with lawyers to find weaknesses in legislation or permits, and take cases to court. Build on successes and publicise victories.

Elon Musk and the Quest for a Sustainable Future

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lon Musk lives in the future, where all people have access to renewable energy, firms do not pollute, hyperloop trains travel at 600mph and humans colonise Mars. Being voted among the top 25 most influential people in the world (Forbes 2016), at the age of 45 Musk still has a lot to offer. After redefining the transportation industry with the introduction of Tesla Inc.’s electric car, Mr Musk has announced his ambitions about the future of energy around the world; and he is serious. All part of his major “Master Plan”, created a decade ago, his actions have been undoubtedly of the utmost importance for the technology of the future.

After introducing the electric car, he managed to produce a model with one of the fastest accelerations the automobile industry has ever seen. However, his vision is much bigger than that. As Tesla continues to innovate, it is leading the auto industry, and the company is far ahead of competitors when it comes to developing electric car battery technology.

In late 2016, Tesla Inc. and SolarCity, a leader in full-service solar power systems, merged in a US$2.3 billion deal.

Tesla’s CEO pulled off the deal amid widespread criticism from business experts who slammed Musk after proposing such a radical merge, making them question whether Musk is a tech visionary or a financial dilettante indifferent to short-term losses. Having said that, as he explained back in June, when he initially proposed the idea: "To solve the sustainable-energy question, we need sustainable-energy production, which is going to come primarily in the form ofsolar. ... Combine that with stationary storage and an electric vehicle and you have a complete solution to a sustainable energy future. Those are three parts that are needed. And those are three things that I think Tesla should be providing."

In doing so, he shifted Tesla’s focus from solely producing electric cars to also tackling the looming energy threat, becoming a true visionary in his field.

What Musk did next was to use the existing research and technology that he developed for his Tesla cars and apply it to energy units that store electricity from SolarCity’s solar panels. The problems solved by these units include the excess energy produced during the day that cannot be stored for later and is thus rendered useless, but also the lack of energy production during the night coming from the panels.

The solution comes in two different versions: the Powerwall 2 and the Powerpack 2; the former addressing households and the latter targeting larger energy consumption units.

These are essentially energy storage batteries that can be easily placed on a wall, where solar panels are present nearby, to store energy during peak times and release it

when needed. The Powerwall also draws electricity from the utility grid when utility rates are low and stores it for later use (Figure 1). In the CEO’s own words: "It gives you peace ofmind so ifthere's a cut in utilities, you always have power”

The most recent versions of the Powerwall unit come in two different options: a 10 kWh model that costs $3,500 and a 7 kWh model priced at $3,000. The impressive feature essential for it to meet any market needs, however, is that these units can be placed next to each other and connected to store as much energy as is desired. Thus, depending on the levels of households’ electricity consumption, the respective number of Powerwalls can be used. The same principle applies to Powerpacks, which are capable of powering even huge factories.

In fact, Musk wants to become the first to test this at a grand scale, with the introduction of the ‘Gigafactory’ (Figure 2).

The name comes from the factory’s planned annual battery production capacity of 35 gigawatt-hours (GWh). “Giga” is a unit of measurement that represents “billions”. One GWh is the equivalent of generating (or consuming) one billion watts for one hour. Tesla alone will require today’s entire worldwide production of lithium ion batteries to meet the demand for 500,000 electric cars annually, thereby meeting

Musk’s goal of a transition to sustainable energy in the near future. The plan for the Gigafactory is to not consume any fossil fuels directly, and for the solar installation to provide most of the power needed by the facility. Any excess power generated during the day will be stored by Tesla Powerpack power storage batteries for use at other times, with Musk putting the new technology into action at a huge scale, showing high confidence in his product. In Leonardo Di Caprio’s recent documentary, “Before the Flood”, the Hollywood actor and UN Messenger of Peace is surprised to hear Musk’s explanation of “what it would take for the entire world to be powered by sustainable, renewable energy: roughly 100 Gigafactories.”

Tesla’s massive Nevada Gigafactory has started producing lithium-ion battery cells in mass capacity, with the aim of supplying products including the upcoming Model 3 electric vehicle and the Powerwall and Powerpack units.

“At the current stage, the factory is under 30 per cent done, yet still manages to occupy 1.9 million square feet, with interior operational space of 4.9 million square feet total because of how it’s using different floors”, Tesla says.

By 2018 it will be operating at full capacity and the 70megawatt solar array installation planned for the roof is the biggest news. Tesla claims it to be seven times larger than the world’s next biggest rooftop solar installation. Innovating

the technological aspect of building mega structures, once again, Musk has surprised us all.

So it is evident that Musk has adopted measures that directly aim at the sustainable energy goals stated in his Master Plan, but what else is up his sleeves? The billionaire entrepreneur does not stop here. Along with Tesla Inc and SolarCity, Musk has been involved in another huge technology and transportation company, namely SpaceX. The company has been focusing on designing, manufacturing and launching advanced rockets and spacecraft for the past 15 years. The Interplanetary Transport System (ITS) is SpaceX's privately funded development project to design and build a system of spaceflight technology and remote human settlements on Mars. Having had a glimpse at what the prizewinning enchanter is capable of accomplishing, the idea of colonising Mars may not sound that farfetched after all.

Finally, in one of his regular trips from San Francisco to Los Angeles, while stuck in traffic, Musk thought of the concept of a hyperloop train that would cover the distance in 30 minutes, about 6 times faster than existing trains. Reaching speeds of 600mph, a hyperloop is a proposed mode of passenger and freight transportation that propels a pod-like vehicle through a near-vacuum tube at very high speeds. On top of all this, another indicator of Musk’s devotion and contribution to the world lies in the fact that he has open sourced a lot of information about the technology used in most of his innovative designs, encouraging people to take the ideas he established and develop them in various ways.

All in all, Musk is a truly skilful innovator who does not hesitate to pursue ideas, which to most of us seem more than exaggerated. Going from batteries to electric cars, the Gigafactory, hyperloops, space stations and beyond, Musk is a true leader of our age. However, given the current rates of environmental pollution and resource depletion, it is now more important than ever to encourage people like Musk to step forward and take action. Political and environmental instability stand as obstacles to such ambitions, but the courage and insight of people like Elon Musk is ultimately what is going to save us. To put it in his own words,

"I came to the conclusion that we should aspire to increase the scope and scale ofhuman consciousness in order to better understand what questions to ask.

Really, the only thing that makes sense is to strive for greater collective enlightenment."

It is this collective enlightenment and effort that is required from people of our time in order to ensure that the quest for a sustainable future will be successful. Elon Musk has set a great example and, hopefully, the rest will follow.

Guest Article

Saving Areva – Too Late to Save a Sinking Ship?

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he competition lawyer Suzanne Kingston highlighted that “one of the fundamental challenges currently facing the EU is that of reconciling its economic and environmental policies.” Striking a fair balance between economic and environmental interests is certainly a key issue to be considered in the context of Areva's restructuring plan.

On January 10th the Commission authorised the French state’s plan to restructure the country’s largest nuclear energy provider, Areva. After having examined Areva's case, the Commission concluded that the restructuring plan was in line with EU state aid rules. According to Margrethe Vestager, the European Commissioner for competition, this plan “strikes the right balance between improving the group’s competitiveness and limiting distortions of competition created by the public financing.”

The legal background of the European Commission’s decision – state aid law in the energy sector The competition law rules of the European Union’s member states can be found in the third part of the Treaty on the Functioning of the European Union (TFEU). The first paragraph of Article 107 TFEU states that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.” Allowing state aid to a company is highly distortive of competition as it artificially keeps a company in the market that would otherwise have left it due to competitive pressure. An aid is therefore a breach of European Union

competition law rules except if justified by exemptions and exceptions provided by the European Union Treaties, and granted under strict conditions, as provided by the second and third paragraph of Article 107 TFEU. The selective advantage granted to an undertaking attempts to guarantee that it will be financially independent in the future to fulfil competition law rules. In addition, an aid can only be granted if it includes measures to limit distortions of competition arising from the public aid and can only be granted once in any ten-year period. By strictly enforcing competition rules, the European Commission aims at restoring companies’ long-term viability to ensure that they do not continuously seek public aid instead of competing on the market place on their own merit.

The European Commission’s decision at stake – Areva’s restructuring plan In the present case, the European Commission authorised the French state to restructure Areva with an injection of public capital in the amount of €4.5 billion, subject to the condition that Areva withdraws from the nuclear business. The restructuring plan aims at focusing on a clear and profitable business in the nuclear fuel industry. The Commission concluded that the complete divestiture of Areva’s reactor business would significantly decrease the firm’s activities in the nuclear sector. This divestiture would mean that Areva is no longer active in the nuclear reactor market, therefore restricting the distortions of competition brought about by the aid granted by the French State.

The political background explaining the European Commission’s decisison The Commission’s decision is based on different reasons, highly influenced by national interests. France has always led the nuclear energy market and thus tries to remain the world champion of nuclear energy. With 19 active nuclear plants, a lack of investment in the sector would put into danger the

14,745 jobs in Areva’s nuclear section. The high unemployment rate is already a tough topic for the French government, which surely does not seek to deal with job issues of one national champion. The national interests seem therefore to justify the decision to grant state aid to Areva.

A lack ofinvestment in the sector would put into danger the 14,745 jobs in Areva’s nuclear section But can this truly be justified? It could be pointed out that the European Commission’s decision highlights two main issues. Not only does the contested restructuring plan not seem to satisfy the requirement of restoring long-term viability of the company but it also does not fit well European environment and climate targets.

Considering that 86% of Areva is owned by the French state and that the troubled nuclear engineering firm has been plagued by serious difficulties over the last 5 years, the decision to allow state aid is surprising in economic terms. The financial situation of the civil nuclear industry postFukushima, together with the company’s business choices and structural problems, has led to considerable economic difficulties. In December 2016, the Wall Street Journal described Areva as a company suffering from a “decades-long cover up of manufacturing problems.” This concern has appeared to be well founded given that 400 large steel forgings in Flamanville (France) have been found to have carboncontent irregularities that weakened the steel. Consequently, the president of the French Nuclear Safety Authority, Pierre-Franck Chevet, described the issues of nuclear safety and radiation protection as “worrying.” It is troublesome as it means that any potential life extension, which Areva may apply for, cannot be granted. Since the incident at Fukushima, public opinion is more likely to oppose the exploitation of power plants which do not respect high safety standards. That is the reason why some documents were

falsified during the nuclear power plants' construction, as acknowledged by Areva executives.

On top of all these issues, one may doubt that the restructuring plan will be sufficient to save the company.

The competition law rules authorised granting state resources to companies only once every ten years. However, the company should only receive financial aid once since it would artificially survive otherwise. The company's troubles are indeed to such considerable extent that one may argue further aid will be needed. Construction of nuclear plants by Areva in Finland is for example already 10 years behind schedule.

French President Hollande promised in 2012 to decrease the share ofnuclear energy in the French energy mix by 50% until 2025 Based on all the above-mentioned considerations, permitting state aid to a company in considerable financial difficulties constitutes an economic aberration. Moreover, it amounts to a counter-productive decision when viewed in the context of European Union environmental objectives.

Member states have committed themselves to ambitious climate change and energy sustainability targets as part of the EU 2020 strategy. While the objectives are set at the European level, their implementation depends on the member states. Though the member states are free to decide on their energy mix, the European Commission highlighted the diversification of energy sources. The choice of energy remains free for individual countries, but should also follow the guidelines set by the European Commission, which promote sustainable and clean sources of energy.

Considering the European Union’s objectives, it is then questionable whether €4.5 billion should be allocated to restore the long-term viability of a nuclear firm instead of investing in renewable energies.

Both Areva and the European Commission believe that the restructuring plan allows the firm to shift from nuclear activities to more diversified ones, including the renewable energy sector. However, it raises the question of whether a direct investment in various renewable energy sources would be more efficient. Though 76% of energy produced in France still comes from nuclear energy, the French

President Hollande promised in 2012 to decrease the share of nuclear energy in the French energy mix by 50% until 2025. Despite the increasing use of renewable energy, global investment in renewables declined by 18% in 2016, according to the Financial Times. This decrease might be partly explained by investments in other sources of energy.

After the incident at Fukushima and many demonstrations in the European Union regarding the issue of nuclear waste processing, it goes against the flow to save a nuclear company. Instead of basing the investment on the sole argument that the nuclear firm will normally invest on renewable energy sources, one may argue that a more appropriate investment would have to directly invest in those sources.

Conclusion The European Union’s aid policy has consistently been at the frontline of the battle to complete both objectives of maintaining competition on the energy market and on respecting environmental objectives. Though state aid can be an appropriate instrument to contribute to achieving both European Union objectives and national targets, investing in a company that faces financial and technical difficulties is undoubtedly not a sustainable and suitable decision. Areva’s restructuring plan highlights that there is still a long way to go to achieve European Union’s objectives in environmental and climate actions. State aid in the energy sector has always been the Achilles’ heel of the European Union's energy strategy, by constituting a complicated balance between European rules and national derogations. In situations involving economic considerations and national interests, environmental and climate objectives are relegated to a position of secondary importance. The balance mentioned

by Margareth Vestager does not pave the way for a viable future for Areva. It is neither based on a sustainable project, nor does it fulfil the European Union’s environmental objectives. Despite the official rhetoric, the European Commission’s decision highlighted that national interest still reign supremely in the European Energy Union. It seems that the European Commission’s Strategy for a Resilient Energy Union launched in 2015 promoting a low-carbon, secure and competitive economy remains more of a strategy than a current reality.

Saudi Arabia: A War ofAttrition?

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audi Arabia has maintained its status as a key player in the oil market for some time now. Its role as the swing producer was formalised in its dominance of the Organisation of Petroleum Exporting Countries (OPEC), and has been the key player in stabilising prices by increasing or reducing its massive stockpiles. Furthermore, it has also demonstrated itself as a political and military powerhouse, with Deputy Crown Prince Muhammad Bin Salman discussing a determination to push back against Iran early in 2016, declaring an end to “comatose” foreign policy.

The perceived strength of the nation was demonstrated when Saudi officials spoke of bankrupting Iran by saturating the oil market, regardless of the advice of fellow OPEC members.

However, by the end of 2016, the Kingdom found itself in retreat on all fronts. After failing to break the back of American shale by oversupplying crude and causing a collapse in oil prices, rising production of crude oil from shale companies in the U.S. have diminished the impact of Saudi Arabia, challenging the Kingdom’s title of global swing producer. Furthermore, Saudi forces in Aleppo are on the verge of defeat, having been forced back by Iranian, Russian, and Syrian forces, a reversal of fortune for the Kingdom. In addition, on November 30th Saudi Arabia agreed with the rest of OPEC to take the brunt of production cuts to regain price stability, whilst allowing Iran to raise production to pre-sanction levels.

There are several factors that will determine Saudi Arabia’s future as both an energy producer, and a political actor. Let us explore these factors and determine the implications they bring.

American Shale Over the last few years, the U.S. has demonstrated rapid growth in its domestic energy sector, with U.S oil and

petroleum production nearly doubling from 8.5 million barrels a day (mb/d) in 2007 to 15.1 mb/d in 2015, with the bulk of growth coming since 2011 (Figure 1). Over the same period, production from OPEC countries stayed flat at around 38 mb/d. The growth in production was spurred by improvements in technologies such as horizontal drilling and fracking, allowing American producers to gain access to shale deposits for oil and natural gas.

Furthermore, such growth was also fuelled by oil tripling in price from $40 a barrel in 2007 to approximately $120 in 2011, hovering at around $100 in 2014. This shale boom in the U.S. attracted heavy investment into American Shale companies, which ended up in the pockets of both existing and new energy companies. Noticing this growth, Saudi Arabia expanded production to try to curb shale production in the U.S. to protect its market share. However, the recent Saudi-led cut in output demonstrates a shift in attitude, suggesting that it no longer seeks to restrict U.S. production.

Furthermore, it could be argued that the increase in Saudi output was a response to Russia’s annexation of Crimea and other parts of Ukraine, cutting down prices for one of Russia’s main sources of revenue.

On December 10th, under the leadership of Saudi Arabia, both non-OPEC and OPEC countries agreed to cut output by around 1.8mb/d, with non-OPEC countries contributing around 558,000b/d. This represents about 2% of global supply and aims to increase prices by closing the gap between supply and demand. Global demand is currently around 95.4 mb/d, with global supply being around 96.2 mb/d.

However, even if all members manage to maintain their agreed cuts, U.S. producers would be major beneficiaries of higher prices. Prices have risen by more than 20% in the past few months to around $54 for a barrel of WTI, the benchmark for crude oil in the U.S. The response from producers followed promptly, with oil rig counts increasing by 13% since the announcement of the OPEC production cut, leading to a total 583 operating rigs.

The price of oil will most likely remain around current price levels, with the potential of short term spikes due to supply disruptions in the Middle East. If oil reaches $60 a barrel, there will be a noticeable increase in the supply of shale production in the U.S., which could potentially reduce the impact of production cuts, as well as erode market share for those following the cuts. The effect will be even more severe with improvements to technology, allowing for greater production efficiency in the U.S.

Geopolitical conflict Not only is Saudi Arabia experiencing external pressure from the American shale industry but it faces pressure from its neighbours in the Middle East. In the last year, Saudi Arabia has seen its allies in the Syrian civil war lose their last big urban centre in east Aleppo. Houthi forces, A Shia-led political movement in Yemen, have launched cross-border raids, inhibiting Prince Muhammad Ali a dignified exit. As one Iranian official stated “Yemen will be Saudi Arabia’s Vietnam… It is bleeding the Saudis’ military and diplomatic prestige.”

The reversal of military fortune is due to the successes of Iran’s military support for Shia and allied forces, including Syria’s Bashar al-Assad, Iraq’s Army, and HezbollahLebanon’s Shia militant political party. Furthermore, the Kingdom is also losing soft power, seen through diminished funding for traditional Sunni allies, who are now looking elsewhere. Saad Hariri, who oversees Lebanon’s Sunni bloc, has accepted the role of Prime Minister under the choice of Hezbollah, due to his construction company in Saudi Arabia experiencing strain from government cuts. Egypt’s president, Abdel-Fattah el-Sisi, is making overtures to Syria, Russia, and Iran because of Saudi Arabia’s reduction in free oil shipments.

Besides these political conflicts, the fact that OPEC nations have managed to agree on a production cut defied expectations, indicating that both Iran and Saudi Arabia can prioritise economic stability over political competition. Both have failed to cover economic spending, let alone foreign ventures. Whilst Iran requires the price of oil to be $55, Saudi Arabia needs $80, according to the IMF. As such, these nations are unable to maintain the proxy wars when oil was at $120 a barrel.

Furthermore, with Donald Trump becoming president of the U.S., there will be further reasons for restraint. With the push for a ‘Muslim ban’ across several countries, as well as the enactment of Iranian sanctions on several Iranian companies as a response to ballistic missile testing, Trump is cementing his reputation for impulsive action and an aggressive attitude towards the Middle East. Both Iran and Saudi Arabia are uncertain whether he may tighten Iran’s nuclear sanctions or further JASTA, a new law allowing Americans to sue Saudi Arabia for losses on September 11th 2001.

Saudi Arabia is unlikely to experience internal revolts any time soon. However, the challenges that the royal family faces today are unlike those that faced their predecessors.

With the Americans and Iranians clamouring to claim a slice of the international energy market for themselves, as well as geopolitical strife emerging from conflicts of interest, the Kingdom will have to demonstrate both patience and strength to manage through this time of uncertainty. The leadership of Saudi Arabia understands the price of failure, as one can look at the Mubarak’s Egypt to see the consequences of economic frustrations experienced by a young population that lacks faith in the traditional and aging model of dictatorship.

Rising Temperatures - Rising Stakes

Geopolitics ofthe Arctic

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he Arctic is warming and so are the geopolitical tensions surrounding its ownership. With its large hydrocarbon and mineral resources, the Arctic is regarded as the final frontier for fossil fuel based energy supply. The warming sea and the melting ice allows greater access to the Arctic and creates new energy opportunities. Some call it the “new Cold War” as disputes over the Arctic’s natural resources, territorial waters and transit routes heated up the last years. The primarily scientific interest in the area turned into a matter of business interests, environmental and national security concerns.

Economic interests in the Arctic’s Natural Resources At 13.38 million square kilometres, the Arctic sea ice extent of January 2017 reached a new low in the 38-year satellite record. According to the US National Snow and Ice Data Center (NSIDC), this is 1.26 square kilometres below the January 1981 to 2010 average (more than 5 times the size of

UK). In just three decades, the Arctic sea ice has lost half of its surface area and three quarters of its volume. Making matters worse, as human-induced climate change causes the ice to melt, the Arctic’s oil and gas reserves become more accessible. 90 billion barrels of oil and 47 trillion cubic metres of natural gas are believed to exist in the Arctic’s seabed, which could account for 20% of the global oil and 30% of gas reserves. During the Cold War, the Arctic region gained strategic significance and was heavily militarised.

After the fall of the Iron Curtain, the Arctic turned into a zone of international cooperation. With the new economic opportunities, the conflict potential surrounding the Arctic is on the rise again. Energy giants such as Shell, ExxonMobil and Gazprom are competing for drilling licences. However, the exploitation of the Arctic oil and gas is only feasible if the energy prices are high enough to cover the costs and improved ice-capable technologies are available. Despite the current low oil prices, the race for the Arctic resources is still going on.

Governance Claims on the natural resources in the Arctic are based on the United Nations Convention on the Law of the Sea (UNCLOS) from 1982. The signatories to the convention have the right to an exclusive Economic Zone (EEZ), which extends the territorial waters from the shore out to 370 kilometres. The coastal nations have the exclusive right to exploit and use the natural resources within this zone. If countries can bring the scientific proof that their continental shelf extends further than the EEZ it is possible to claim the rights on the seabed up to 648 km from the coastal baseline.

With the possibility to extend the rights, the disputes over the Arctic resources became even more complicated.

Another complication arises from the fact that the United States recognises and adheres but did not ratify the convention. Even though the oil industry, the military and environmental organisations are all in favour of the US ratification of UNCLOS, the US Senate failed to approve the convention so far. Whereas the US relies on customary international law Canada, Denmark and Russia submitted claims to the UN to extend their continental shelf under UNCLOS law. By ratifying the convention the US would make a great contribution to a more stable international framework that allows a clearer delimitation of sovereignty.

However, UNCLOS is far from being perfect and is often criticised for the ambiguity and lack of transparency of article 76, which defines the continental shelf. A major flaw is that submissions of sea shelf claims are not available to other member states, which makes it hard to find a consensus and to comprehend decisions made by the UN. The Arctic Council, established in 1996, was set up to promote the cooperation between the Arctic nations and the indigenous people of the Arctic region. It only intends to address issues that do not touch any national security issues and is thus mainly focused on collaborations on the harmonisation of technical and infrastructural systems.

Russia’s stances on the Arctic The reason for Russia’s interest in the North is obvious: The Arctic is the country’s resource richest area, the total value of mineral resources estimated to be over 22 trillion US-Dollars compared to eight trillion in US resources. The Russian Arctic contains a vast stock of raw materials besides fossil fuels such as gold, diamond, nickel, copper, platinum, iron and timber. Although only 10 per cent of the population is living in the Northern part of Russia, it contributes up to 20 per cent of Russia’s GDP. Most of Russia’s energy resources are located in the Arctic and almost all of the Arctic natural gas deposits belong to the Russian territories. So far, all countries bordering the Arctic

called for sovereignty over territories and waters but none of the countries seems as well prepared and determined to claim their rights as Russia. In 2007, a Russian scientific expedition planted a flag on the ground of a disputed part of the North Pole’s seabed and made Russia’s aspiration clear.

Russia claims that the Siberian shelf is directly linked to the Alpha, Mendeleev and Lomonosov ridges that reach out almost all over the North Pole. Russia’s efforts to get their claims accepted by the UN have not been successful so far.

The unleashed disputes with Denmark and Canada are not settled yet and these countries are in the middle of a race for scientific proofs to make their claims legal. At the same time, Russia reinforced its military activity in the Arctic and started reactivating soviet military bases. The military buildup is supposed to be the biggest since the Cold War and includes the new construction of six permanent military bases along the Russian coast. Since November 2016, 6.000 soldiers are permanently based in Murmansk from where the Northeast Passage can be monitored and controlled. By now Russia is the only country with an Arctic army and all the other countries are lacking behind. The vast fleet of icebreakers constitute an important contribution to Russia’s lead in the Arctic. The country possesses 40 icebreakers and eight more are under construction whereas the US three and only one polar-class icebreaker and one under construction.

Indeed, it is impossible for the other Arctic nations to catch up and fill the military gap as one icebreaker costs about one billion dollars and takes several years to construct. The enormous efforts taken by Russia show how determined it is to dominate the Arctic waters and territories it claims. Even though other NATO member countries such as Denmark, Norway and Canada heavily invested in the development of their Arctic guards and defence there is still a big gap that will not be overcome soon.

Obama’s legacy In December 2016, shortly before the end of Barack Obama’s presidency, the United States and Canada ruled out drilling for oil and gas in wide parts of the Arctic. From 2017 to 2022, the plan blocks all new offshore oil and gas leases in the Chukchi and Beaufort Seas in the north of Alaska. This was done in prospect of the announced energy politics of the new president of the United States, Donald Trump. As previously announced, Trump made Rex Tillerson his Secretary of State, the former CEO of the American energy giant ExxonMobil. Tillerson claimed that he would wait one year until getting involved in any state decision concerning Exxon. However, environmental organisations such as Greenpeace expect him to persuade Trump to pass an executive order that terminates the Crimea sanctions and would allow ExxonMobil to continue their oil drilling deal with the state-owned Russian oil company Rosneft. ExxonMobil and Rosneft signed a joint

venture on 10 drilling licences in Russia’s Arctic waters that are on hold since 2014 due US sanction as consequence of the Ukraine conflict. With Tillerson as Secretary of state and Scott Pruitt an advocate of the use of fossil fuels as the chef of the Environmental Protection Agency it is very likely that Trump will try to reverse Obama’s decision on Arctic policy.

Because of its geopolitical value the U.S., Russia and the European Union contest Canada’s sovereignty over the Northwest Passages and regard it as an international transit passage. Even though Canada is at present involved in scientific, technical and legal proceedings to manifest their claims over the passage, it is likely that Canada will have to make concessions for diplomatic reasons.

New trade passages

The other corridor that will become more accessible due to intensified ice melting in the coming years is the Northeast Passage that passes through the Russian Arctic. The journey between Europe and Asia through the Northeast Passage is supposed to be around 13 days shorter than the current route through the Suez Canal, where piracy poses risks.

Natural resources are only one reason for the growing interest in the Arctic region. Another is that new shipping routes are opening up as the Arctic ice is melting. Two new important trade passages – the Northwest and the Northeast Passage – that connect Europe with East Asia and North America change the political situation and create new tensions. As the Arctic is becoming ice-free for several months in summer, there are good reasons to switch trade from the common routes to the North. The Northwest Passage, which goes along the Northern coast of North America and connects the Atlantic with the Pacific Ocean, is 40 per cent shorter than the Panama Canal. Furthermore, the waters are deeper than in the Panama Canal, which

allows vessels to carry more cargo and big tanks to pass, which formerly had to take the long route over the Cape Horn.

An important milestone was reached in 2014, when for the first time a cargo ship travelled the Northwest Passage without an escort from icebreakers. As the Northwest Passage goes along the Canadian Arctic Archipelago, Canada claims the Northwest Passage as internal waters.

Conclusion To ensure a peaceful and sustained development in the Arctic region a profound international approach is needed.

As the planet is warming, the situation in the Arctic has changed and forced the Arctic five to reconsider their national interests. In order to prevent increasing political tensions between the Arctic countries and an armament race

between Russia and the NATO, a better legal framework is needed. The convention of the law and the sea seems insufficient to solve the complicated territorial and marine claims that arise from the changing environment. Beyond doubt, the Arctic region holds tremendous potentials that allure countries to make investments that involve high risks.

However, the most important responsibility that rests with the Northern countries is the protection of the Arctic for the sake of the global environment.

Guest Article

Between Deadlock and Breakthrough: EU-Azerbaijan Trade Negotiation Process

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he trade negotiation process between the European Union and Azerbaijan has been moving at a slow pace. Presently, trade relations are still governed by a 1999 Partnership and Cooperation Agreement. After joining the Eastern Partnership in 2009, Azerbaijan deepened the political and economic dialogue through negotiations on an Association Agreement. Its framework aims to ensure that fundamental WTO rules and principles are applied and enforceable in the bilateral trade. While the agreement reflects EU support for potential Azeri WTO accession, it has not been received well in Baku. The counter-proposal that followed, a Strategic Modernisation Partnership, is nonbinding and would not ensure real political obligations in Baku. The overall trade negotiation dynamics are based both on the distribution of power as well as the preferences and strategies of the negotiators. The question is thus: What are the overarching political implications of the parties involved - does Azerbaijan remain under the EU sphere of influence or become even more independent?

Power Distribution in EU-Azerbaijani Relations Geopolitics is one of the most pertinent factors in EUAzerbaijani relations. As Azerbaijan is tapping into its natural resources through its State Oil Fund, SOFAZ, it has gradually led the country grow into a stronger actor in the South Caucasian region. Azerbaijan’s neighbour on the way to Europe, Georgia, has thus become a target of continuous foreign direct investment. With investments mainly in the energy sector, Azerbaijan is the largest non-EU investor in Georgia, doing so mainly in the energy sector. Additionally, Azerbaijan took a larger role in the Southern Gas Corridor project through the ongoing development and exploitation of the Shah Deniz gas field. This has resulted in economic independence from the EU, creating a relatively balanced bilateral relationship.

However, the EU remains Azerbaijan’s main trading partner, responsible for more than 40% of Azerbaijan’s total

trade. Trade in goods accounted for approximately 10.7 billion Euros in 2015 thanks to the large EU internal market. While 98% of this trade is related to mineral fuels, the overall value has progressively decreased over the last three years because of the initial boom in trade in 2008. In fact, it could be argued that Azerbaijan’s energy sector mirrors the country’s economic development. Conversely, the EU sees Azerbaijan as an alternative to Russian energy in its attempt to deliver on its energy policy plans. Security of supply and energy diversification are vital contributors to a successful Energy Union.

The EU remains Azerbaijan’s main trading partner, responsible for more than 40% ofAzerbaijan’s total trade While the EU is still an agenda-setter through the EaP framework, it does not exercise leverage over Azerbaijan for three main reasons. Firstly, Azerbaijan is different from members such as Ukraine or Georgia in so far as there is no political carrot for a plausible accession path to the Union.

Secondly, the EU is dependent on Azerbaijani oil when it comes to energy security. The oil-rich country in the South Caucuses finds itself between Russia, Turkey and the EU, which creates great bargaining power and flexibility. Thirdly, the lack of leverage could also be explained through the concept of synergetic issue linkage. Although the EU’s top priorities for Azerbaijan are the decrease of human rights violations and the further promotion of democracy, the provided incentives and legal obligations for these are very weak. Regardless of the abuses on this agenda, the EU is simply unable to sacrifice its natural gas coalition and overall trade perspectives on the other.

Due to these multiple level of interactions, we can notice the role of individual MS as well. During a high level meeting, Germany’s Chancellor Angela Merkel simultaneously presented her country’s position and the European one by referring to Azerbaijan as a key partner for Germany. While not explicitly pressing Azerbaijani president Aliyev for adhering to human rights, she explained the EU need for diversification of energy supply. Additionally, Merkel pointed out the importance of sending German technical assistance and investors in order to expand infrastructure – clear indications of a more intrinsic three-level game dynamic. In particular, oil companies around Europe that have interest in granting their know-how and technological resources understand the investment potential of the Southern Gas Corridor for the EU. Hence, the bargaining power of the EU as an entity decreases.

More importantly, the bilateral relations between the EU and Azerbaijan are also influenced by other international actors. In particular, the lack of WTO membership for

Azerbaijan prevents the country from entering into a deeper cooperation process with the EU on the level of a Deep and Comprehensive Free Trade Agreement (DCFTA). Even though Azerbaijan has made incremental steps towards adopting WTO standards in different areas, there are still points of contention, and more effort is needed. The lack of WTO membership clearly provides for the flexibility and greater room for manoeuvre on behalf of the Azeri government.

How they play the game: Strategies and preferences Power balance by itself does not explain the status quo in the bilateral trade relations. However, understanding the preferences of the two parties on how to translate their capabilities into force sheds more light on how the game is played.

As a part of its ENP and EaP frameworks, the EU has attempted to adapt a normative discourse in its Eastern neighbourhood when it comes to value creation. In that case, the focus revolves around democratisation and the promotion of human rights, an area Azerbaijan has reportedly struggled in the last few years. Whereas on an institutional level, the European Commission and the High Representative could join forces in order to address the growing role of Azerbaijan in the region. While this may have worked with a neighbouring country, which is aspiring to join the Union and has some conditionality imposed, this is not the case with Azerbaijan. Existing trade strategies on the EU level mainly include increased Foreign Direct Investment and technical assistance on the ground. Eurostat data from 2014 shows that Azerbaijan was the only ENPEast state with a trade surplus. This connects to the EU attempt to stimulate economic growth as well as negotiate effective trade policies. However, the desire to diversify energy sources has clearly left its mark since Azerbaijan is the only ENP-East country to predominantly export mineral fuels.

As the fastest growing economy between 2005 and 2007, Azerbaijan is now looking to become a solid actor in the region before its oil reserves run out. In early 2016, the Azerbaijani President, Ilham Aliyev, ordered the creation of a Free Trade Zone in the Port of Baku. In this light, as the economy became energy-oriented, the government did not look to modernise anything else. In fact, energy realities guided government behaviour. Since Azerbaijan is not a WTO member, it does not benefit from removal of tariffs in order to lower prices for consumers. However, the Azeri government has consistently increased domestic fuel subsidies. This impacts not only wholesale consumption but also the agriculture sector, which also saw an increase in subsidisation. This discrepancy between domestic and export prices, or dual pricing, has been an issue of

contention at the level of the WTO on a few occasions, notably with Saudi Arabia’s accession talks to the WTO. Even though dual pricing is WTO-consistent in the case it is applied universally over all policy domains, heavily subsidising the domestic energy sector may result in trade distortion and harm the environment. Furthermore, fuel subsidies in Azerbaijan have been projected to increase according to the most recent IMF Country Reports, in line with the devaluation of the manat, its local currency. Due to the complex nature of the dual pricing issue, its legal aspects are still open to interpretation and the problem eludes greater scrutiny.

Checking the final score: Evaluation of the win-sets There is a great discrepancy between the bargaining powers of the two parties. On the one hand, the EU’s decision is more encompassing and requires Azerbaijan to undertake

more action on the domestic front. However, the EU does not possess leverage strong enough to assert itself. On the other hand, Azerbaijan is clearly reluctant to discuss the politicised issue of human rights. Hence, interests are encompassing only strategic trade cooperation in the energy domain.

Interestingly enough, the start of EU-Azerbaijan Association Agreement negotiations coincided with the peak of oil extracts in Azerbaijan and the decline of natural gas consumption in Europe. This may further contribute to the deadlock in the negotiations. A solely economic strategic partnership should be beneficial for both parties, if the EU dispenses with its aspirations to be a soft power this particular neighbourhood. Conversely, if the EU advocates the promotion of democratic values, then it might lose the benefits of securing the internal energy market. Azerbaijan is maximising its potential in this multi-level trade game, thanks to the interest overlap in the field of energy cooperation and the current abundance of resources.

Pay as You Power How a new business model is electrifying Africa and Investors

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ith around 600 million people in subSaharan Africa lacking access to electricity, and with low electrification rates throughout, the opportunity and market to be captured is huge for the off-grid solar industry.

One business model that has started building some traction over the last few years, especially in east Africa, is the pay-asyou-go (PAYG) solar business model. It focuses mainly on giving the rural population, mostly living on one to 10 dollars a day, a viable option to finance solar power access for themselves – something that is usually connected with the high upfront cost barrier to potential customers.

Although the structure of the products offered by these PAYG solar firms vary a lot, they generally offer a solar panel and some other appliances (such as mobile phone chargers, LED lights, batteries, radios, etc.) for an upfront

cost of around $30, followed by daily, weekly, or monthly instalments of roughly $0.30-0.50 per day. Ownership of the system may then be transferred to the customer after a certain amount has been paid, or it may be a continuous lease of the system from the business to the customer.

Mobile payment services such as M-Pesa in Kenya are often used to make payments by consumers who generally do not tend to have any sort of credit history. These unconventional payment structures thus form an integral part of the PAYG solar model. The current market represents only a small share of the overall off-grid population with about 500,000 households being electrified by the end of 2015 using PAYG-financed solar panels.

About half of them are powered by M-Kopa, the industry leader based in Kenya. However, the management of d.light, another Kenyan PAYG solar company, is optimistic about the future and expects the industry to power 100 million consumers by the end of 2020.

The benefits to consumers are evident: Businesses in rural areas stay open for longer which promotes economic activity while “children spend an additional 90 minutes doing homework” according to Mr. Bransfield-Garth, CEO of Azuri Technologies, another solar firm operating in 12 countries. Consumer health improves as light is no longer provided using kerosene-fuel lamps and greenhouse gas emissions are reduced. Moreover, the pay-as-you-go payment system over mobile platforms allows customers to start building up a credit history and record, leading to further economic empowerment and independence in the future while also generating jobs in the supply chain of the operations of the solar firms. The pay-as-you-go model also offers consumers flexibility in terms of expenditures, while also transferring the risks from the system malfunctioning from the consumer to the provider. So, by providing clean and financially inclusive energy to rural villages, the PAYG model is not only raising living standards throughout rural communities, but also giving them the opportunity to improve their lives themselves.

Although PAYG solar companies have many advantages, their respective uptake has varied drastically across countries and geographical regions with Central and especially Eastern Africa having a relatively large PAYG solar financing sector.

Kenya has been at the epicentre of this industry with M-

Kopa, the largest player in the market which established itself in 2010, licencing its technology to various other solar firms such as the Ghanaian market leader PEG. M-Kopa is on target to power a million off-grid households by the end of this year and various other firms are making use of the country’s regulatory framework and infrastructure. The main reason for the success of powering Kenya’s rural population through PAYG solar systems is the M-Pesa mobile payment system - a system used by about 45% of Kenya’s population whose transactions account for almost half of Kenya’s GDP and whose top-up kiosks outnumber cash machines a hundred times. M-Pesa’s success is grounded on Kenya’s lax environment in the banking sector and the ease of doing business, which is relatively high according to data from the World Bank Group and similar to many countries where PAYG solar uptake is high. This environment also benefits the PAYG solar firms, as weaker banking regulations give companies additional freedom with respect to the manner in which they can finance their own activities and the kind of payment structures they might employ. Although this might give other countries a guideline on how to create an environment in which PAYG solar financing firms can help the country and its population flourish, it needs to be emphasised that a system such as MPesa and its success cannot simply be replicated from one day to another.

But to expand into areas where more complex challenges such as limited mobile money adoption, or “difficult distribution networks” are being faced, firms such as Pawame, a solar start-up based in Nairobi, take a learningby-doing approach to see how their business model functions in more challenging environments, and use the evidence from these markets to go into “new markets with sustainable operations”, says Pawame’s CTO Majd Chaaya, in addition to operating in a crowded, proven market to improve their processes as a whole.

However, being a socially entrepreneurial business with green credentials is not what will keep a company going. At the end of the day, it still comes down to accounting numbers and having a financially viable business plan. Also, handing over a kit of home appliances worth multiple hundreds of dollars for an initial upfront cost of around $30 to customers lacking a proven credit history and earning very little income seems risky. This is where another step of the due diligence process of PAYG solar firms comes in, as most companies run extensive background checks through questionnaires on potential consumers collecting numerous data points ranging from economic over domestic to social

factors. It seems to work: more than 90% of customers pay their daily fees on time. As a result, the PAYG solar financing industry attracts various investors both through debt and equity funding, including venture capitalists, who are not only looking to make a high return on investment quickly without regards for the future of the solar firm postexit, but also seek to make a social impact through their investment activities, according to Raj Prabhu, CEO of Mercom Capital, a clean energy market research company.

Now, with more than one billion people enduring to live offgrid worldwide, the market and demand for PAYG solar firms is huge, which will lead to sustained growth for the industry as it continues to gain prominence in other parts of the world such as South-East Asia and India, especially as green, well-connected, and reliable grids remain utopic in many of these regions. In order to facilitate the growth of the sector, governments should ensure that the infrastructure, especially mobile payment and other Fintech services, become widely integrated in addition to PAYG solar firms continuing to educate customers, both current and potential, about their products.

A Bright Future for GCC Energy

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s renewable energy prices plummet and capacity expands year after year, jurisdictions around the world are racing to become the “Saudi Arabia of solar energy.” Yet a combination of new energy potential and the region’s geopolitics may result in Saudi Arabia itself becoming the “Saudi Arabia of solar energy.”

Oil Crash Building off of their tremendous petroleum reserves, the states of the Arabian Peninsula have developed economically at a break-neck pace, accelerated by recordsetting oil prices higher than $100/barrel per barrel for the first time in history. But by autumn 2014, a variety of factors caused OPEC — the supply-setting coalition of major oilproducing countries — to increase production dramatically.

Among these factors was increased competition from highcost production techniques such as expanded deep sea and arctic drilling, and newly developed hydraulic fracturing in North America. Another factor was the potential for Iranian oil to flood the market after international sanctions on the country were eased. The resulting oversupply, combined with decreased demand for petroleum from China as its economy slowed, caused the price of oil to plummet to under $30 per barrel by January 2016.

Impact on KSA In Saudi Arabia, the economic impacts of the crash were detrimental to the economy. As a powerful voice in OPEC, the country was a major proponent of the production increase, yet the economic impacts to the country and other oil producing nations were, and continue to be, unsustainable for national budgets.

At nearly 900,000 barrels a day, Saudi Arabia burns more petroleum for electricity production than any other country in the world As a result, Saudi Arabia has been forced to draw heavily on foreign exchange reserves over the past two years. While the price of oil has risen to the mid $50 range, as of March 2017, the self-inflicted volatility of the country’s most valuable commodity clearly shows that Saudi Arabia urgently needs to refocus its energy and export portfolio if it intends to maintain its standard of living and retain the balance of power in the region. While oil is the kingdom’s most valuable asset (with an estimated 15% of global proven oil reserves under its control), its somewhat unique habit of using about one quarter of the petroleum it produces for domestic electricity generation is chemically inefficient and reduces the country’s oil exports. At nearly 900,000 barrels a day, the country burns more petroleum for electricity production than any other country in the world, according to the latest numbers by the International Energy Agency. As oil prices begin to rise again, the country will be faced with a choice: Either allow its finances to continue suffering by undercutting the market and producing high amounts of oil at low prices or meet market demand at the expense of regional power at a politically volatile time for the peninsula. For Saudi Arabia, this isn’t all bad news — the country is rich in solar potential; its neighbour and ally, Qatar, is rich in natural gas reserves;

and by shifting generation to these two sources, the country would be able to dedicate a far greater percentage of their petroleum reserves to exports, and thus retaining its international dominance in the energy market.

Natural Gas If not oil, then what? Neighbouring Qatar is an energy superpower, or at least has the potential to be one.

According to BP’s 2016 Statistical Review of World Energy, Qatar — a tiny country of 2.5 million people — accounts for 13.1% of all proven natural gas reserves in the world. With 24.5 trillion cubic meters of natural gas, it ranks third in the world for proven reserves – putting it behind only Iran and Russia. Qatar also ranks third in the world in the important reserve-to-production ratio measurement (at 135.2), behind Iran and Turkmenistan. As a result, the country is pioneering investment in liquefied natural gas terminals to allow for expanded global market access. But the process of liquefying natural gas is expensive, and its market will always dwarf the traditional gas market. Pipelines throughout the countries of the Gulf Cooperation Council — a supranational trade body throughout the peninsula — will likely open up an increasingly large natural gas market for Qatar if the GCC expands pipeline production fast enough to meet demand.

Qatar accounts for 13.1% ofall proven natural gas reserves in the world Qatar’s wealthy neighbours, like Saudi Arabia, which have relied on petroleum-based electricity generation for decades, may become an increasingly large market for Qatar’s exports and allow Saudi Arabia to repurpose that petroleum as exports.

Solar and Wind A large portion of land in Saudi Arabia is very bright, very flat, and very cheap — especially the land already owned by the government. The realisation of this solar potential is already beginning to emerge. Vision 2030, the economic reform blueprint of 31-year-old Deputy Crown Prince Mohammed bin Salman, highlights renewables as a key component of the country’s economic reform. In January 2016, Khalid al-Falih, the country’s oil minister, announced

up to $50 billion of investment in utility-scale solar and wind projects that could boost renewable capacity to 10 GW by 2023. Previous plans indicated only 2.5 GW by 2020.

While there have been false starts for solar in Saudi Arabia before, this is one of the clearest indicators that Saudi Arabia is serious about its ambitious plans to reform its energy sector and economy as a whole. This, combined with expanded investment in the regional electricity grid, can provide more than enough power to satisfy the country’s entire electricity needs.

Geopolitical Beyond cheap natural gas, high solar irradiance, and mounting pressure for climate commitments, the government and neighbouring countries have much to gain geopolitically from the shift in generation sources. Across the gulf, exaggerated fears of a recovering Iran and of significant Shia populations in several Gulf States pose what some in the Saudi government see as an existential threat to the Sunni-led country. As the de facto leader of the Gulf Cooperation Council — the country is uniquely poised to develop closer regional ties with major existing infrastructure networks, such as electricity interconnections and pipelines.

Saudi Arabia has the potential to secure an energy future that assures both financial prosperity and national security — it remains to be seen if they will take that opportunity.

A Necessary Friendship: The U.S.-Mexican Oil Market

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n the last 17 years, Mexico’s oil exports to the U.S. have averaged an approximate amount of 1,135 thousand barrels per day (tbd), thereby making the U.S. the primary destination of crude oil from Mexican territory. Meanwhile on the American side, Mexico is the third largest importer of crude oil after Canada and Saudi Arabia. This dependence between Mexico and the U.S. highlights the relevance of the energy market that exists between these two countries. Hence, the purpose of this article is to explain: 1) the characteristics of the oil market between Mexico and the U.S., 2) the opportunities that exist today during the administrations of President Donald Trump and Enrique Peña Nieto and 3) the importance of maintaining the relationship that characterises the two countries amidst their divergent views on different topics.

Starting with the oil market between Mexico and the U.S., from 2000 to 2004, oil exports to the U.S. grew from 1,203 to 1,483 tbd (Figure 1), increasing by 5 per cent on a fiveyear average. After 2004, exports have been decreasing at an average rate of 7 per cent. The reason for the decline is twofold: a reduction of Mexico’s total oil production paired

with an increase in U.S. crude production.It seems that the reduction of Mexican exports to the U.S. from 2011 to 2015 has more to do with the fact that the U.S. has reduced its dependence on crude oil from other countries due to a rapid increase in its own production.

In terms of the Mexican economy, the opportunities that exist in the oil market stem from the possibility to enter the hydrocarbons exploration and extraction industry. This is specifically the case in deep water (Table 1), which can be highly important for the U.S. as both countries have access to the Gulf of Mexico. During December 2016, the Mexican Government auctioned 10 blocks for exploration, where 8 of them were successfully granted (Table 2).

Meanwhile, in the U.S. the opportunities that the Congressional Research Service sees between Mexico and the U.S. are the following: • The opening of Mexico´s natural gas industry: According to the report, the Eagle Ford basin in Texas can extend to Mexican territory • The cooperation between the two countries in terms of

refining processes could be expanded • The United States-Mexico Trans-Boundary Hydrocarbons Agreement, which allows the U.S. to export crude oil to Mexico • Cooperation in the construction of cross-border pipelines, as there are currently no connecting pipelines for crude oil As we can see, the interdependence of these countries goes beyond their own conflicts in topics such as immigration and trade deals. Specifically in the energy market, Mexico and the U.S. have the potential to create a region with energy security, potential jobs and innovation. Therefore, as the energy reform in Mexico is completed and the NAFTA renegotiation is achieved, the next point of business is to plan how the energy market (particularly the oil and gas sector) between the two countries can achieve its biggest potential with bilateral cooperation.

Guest Article

Renewable Energy in Emerging Economies: The Case ofVietnam

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ne of the emerging economies in Asia, Vietnam is now changing policies on energy issues. As the economy grows, the energy demand is increasing.

Nuclear power has been taking an important role in the future energy policy of this country. However, due to the expensive cost of introducing nuclear power plant infrastructure, the government has stopped the project, while it increased the portion of renewable energy in its electricity generation.

The importance of reducing greenhouse gas emission is rising not only in developed countries but also in emerging economies, particularly in the Asian region (Figure 1). The Paris Agreement in 2015 set the target for the CO2 reduction both in developed and developing countries. It also means that renewable energy is getting more and more necessary in developing countries. This article explores the current state and future prospects of renewable energy

The second support is the Feed-in Tariff (FIT), which has been established in 2011 and aims at electricity generation using wind power and bagasse – a residue left after the extraction of juice from sugar cane.

Some projects started using this support, but the number is still limited. The government tries to extend FIT to solar power generation soon and has already written the target number for solar power introduction in a revised development plan in 2016.

deployment in Vietnam, one of the emerging economies in Asia.

After the economic reformation in 1986 (called Doi moi, which means "renovation" in Vietnamese and introduced a partial market economy system), Vietnam experienced a high rate of economic growth for decades. From 1988 until 2016, the annual growth rate has always been above 5% except for 1999, when Vietnam suffered from a slight effect of the Asian financial crisis that started in Thailand in 1997.

Along with the economic boost, the electricity demand has also been increasing. Demand in 2015 has tripled compared to ten years ago.

Vietnam has been relying on large amounts of hydropower for electricity generation for a long time. However, as development of the large-scale hydropower sources is slowing down, the government is focusing on coal power plants as shown in Figure 2.

Previously, Vietnam planned to introduce nuclear energy to its power mix by building nuclear power plants supported by Japan and Russia. Due to the high financial costs, however, the government stopped the plan last November.

With this background, the Vietnamese government tries to increase the generation from renewable energy sources. In the 7th National Power Development Master Plan in 2011, it settled the target number for the production capacity by renewables. The share of renewable energy in the total electricity generation should be 4.5% in 2020 and increase to 6% in 2030. This target was revised to 6.5% in 2020 and 10.7% in 2030, following the fast pace of deployment so far.

From literature surveys and interviews conducted by the author in 2015 and 2016, it follows that Vietnam is preparing three incentives for the promotion of renewable energy. The first is Avoided Cost Tariff (ACT), applied to small hydropower and biomass. The Electricity Regulatory Authority of Vietnam (ERAV) sets the price each year. This support is effective since 90% of renewable energy comes from small hydropower plants.

The third one is the preferential tax system applied to companies that produce electricity using renewable energy sources. These companies can enjoy not having to pay corporate tax for the first four years. For the following nine

years, the corporate tax is reduced to 10%, i.e. to half of the normal corporate tax rate.

In addition to these official policies for the promotion of renewable energy, unconventional support for small hydropower companies exists. For a long time, the largescale hydropower project was a national project, whereby the residents just transferred the rights of the land. This mindset still exists and may affect the decision making of residents such that they transfer the rights to their land to the company without being compensated properly. This implies that companies can pay a lower cost for acquiring land for their project site.

While policy support is offered by the government and the share of renewable energy in the power mix is increasing, there are still problems that exist. The deployment of renewable energy will contribute to both the national and global interest to reduce greenhouse gases.

However, it will not contribute enough to the social welfare in the local regions where renewable project sites exist. For the long-term future perspective of Vietnam, a policy that targets this point will be necessary.

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