No. 4, 2012
TO BUIILD AN ENERGY FUTURE SUSTAINABLE
Oil of Russia magazine talks to S.Vijay Iyer, Director of the World Bank’s Sustainable Energy Department
Energy is a key sector for many countries in the economic, social and political terms. As the world economy grows, the demand for energy sources increases. Making a sustainable energy future is a challenge that the world faces these days. In his interview to our magazine, Mr. S. Vijay Iyer, Director of the World Bank's Sustainable Energy Department, shares his views on the global opportunities for sustainable industrial development.
Q: Mr. Iyer, what are, in your view, major challenges for the global energy industry?
A: The energy industry's major challenge is closely related to that facing the World Bank Group, and indeed all actors in the energy sector. It is to meet growing demand for electricity and fuels, which are essential to economic growth and poverty reduction, in a sustainable way. Population, technological and economic growth are expected to drive up overall energy demand by a third from now to 2030, with 90% of new demand in developing and middle-income countries. This is placing pressure on all the energy industries, including oil and gas, upstream and downstream, electric power utilities, renewable energy companies, and energy efficiency players. Our challenge - a global challenge that is shared by the energy industry - is to build a sustainable energy future by acting on three fronts. First, expand access to energy that is affordable to low-income consumers. Second, promote energy efficiency practices to moderate consumption patterns in energy-intensive economies. Third, facilitate a shift to cleaner energy sources where feasible.
Q: How large is the share of World Bank Group's lending for the oil and gas sector in its investment portfolio?
A: Our lending volume in oil and gas is much smaller than in many other sectors. With abundant private capital investment available for most oil and gas projects, financing from multilateral development banks is not sought to the extent that it is in other sectors. We do, however, provide technical assistance to countries in oil and gas development. We also manage the Global Gas Flaring Reduction partnership, with 32 governments and oil companies as members, as well as the Extractive Industries Multi-donor Trust Fund, which promotes transparency and improved governance in oil, gas and mining. On the financing side, the World Bank Group's investments in oil and gas, including risk insurance, are about $250 million a year, or three percent of annual energy commitments of roughly $8 billion a year.
Q: One of the initiatives supported by the World Bank is the Global Gas Flaring Reduction partnership (GGFR) launched in 2002. Today, 10 years since then, how would you assess the effect of GGFR? What is the current situation with the gas flaring and venting (especially in Russia), according to WB's estimations?
A: The Global Gas Flaring Reduction partners have helped reduce CO2 emissions by about 85 million tons since 2005, a 20% drop. It is an impressive achievement. Part of this is due to a global standard for flaring reduction that has been established. Also, many GGFR partners have invested in associated gas utilization projects, and committed to no flaring in new projects. Still, about 140 billion m3 of natural gas are being flared and vented each year worldwide.
In Russia, work by government agencies has produced results. Associated gas flaring volumes in Russia dropped from 54.4 billion m3 in 2003 to 37.4 billion m3 in 2011. One example is in Khanty-Mansiysk, where the Khanty-Mansi Autonomous Area (KhMAA) joined GGFR in 2005. Since then, work by the KhMAA and oil companies in this region resulted in a reduction of flaring by almost 40%. A public-private partnership of local government, private businesses and oil companies in the KhMAA has helped utilize flared gas at Salym, Shapsha, and Prirazlomnoye oil fields. This model can be expanded to other regions of Russia, as well as to other countries.
Russian oil companies, including LUKOIL, would benefit by joining the GGFR partnership. Looking ahead, we want to scale up associated gas utilization, to unlock the value of currently wasted natural gas to achieve improved energy efficiency, expand access to electricity and cleaner cooking fuels, and mitigate climate change.
Q: In your opinion, what role is natural and liquefied petroleum gas playing in expanding the access to electricity and clean household fuels in developing countries?
A: Natural gas has a critical role in expanding access to electricity as well as to clean household and heating solutions. Using natural gas instead of coal for power generation reduces CO2 emissions, as well as pollutants harmful to health. As a power source that can be dispatched on demand, natural gas is a vital complement to grid-based renewable energy drawn from intermittent sources such as sun and wind.
But natural gas is not commercially viable in most rural households, even in developed countries, and for many urban households in developing countries. In such cases, liquefied petroleum gas (LPG) is an important for cooking and heating.
As I mentioned in discussing the GGFR, the World Bank plans to promote the use of natural gas and reduce greenhouse gas emissions at the same time, by seeking a scale-up to the GGFR partnership. We plan to scale up flaring reduction efforts, while also focusing on the development of the whole gas value chain, both upstream and downstream. The main goal is to further increase the utilization of currently flared associated gas by developing domestic natural gas markets, particularly to expand access to electricity.
On the demand side, increasing household use of LPG is one of several pathways to achieve universal access to clean cooking and heating systems by 2030. A recent World Bank study, The Role of Liquefied Petroleum Gas in Reducing Energy Poverty, showed that the main reason households don't switching to LPG is its high cost. These costs can be reduced by lowering barriers to LPG companies' entry. Enabling third-party access to import terminals and storage tanks would be one way. Improving regulatory frameworks and standards for LPG management is another. Our study also found that, at the same income level, households with a greater awareness of LPG tended to switch to it. So, public communication about the benefits of LPG is important too.
Q: What will be the key elements of the World Bank's strategy for the energy sector in the next few years? What will the WBG do to find the balance between the need to help developing countries to produce more energy and the need to slow down global climate change?
A: Our new World Bank President, Jim Yong Kim, has agreed to co-chair the High-Level Advisory Group for the Sustainable Energy for All Initiative launched by the UN Secretary General Ban Ki-moon. This initiative calls for a global collaboration among governments, civil society and the private sector to deliver on three goals by 2030: universal access to electricity and clean cooking fuels, doubling the share of the world's energy supplied by renewable sources from 15% to 30%, and doubling the rate of gain in energy efficiency. Meeting these objectives will require more investment by both public and private sectors, more effort on the policy front in a wide range of countries, along with technological innovation. It is an ambitious agenda, but it is achievable through common global will and collective action.
Q: The World Bank Group is increasing its investments into renewables. What do you see as the most promising sources of green energy?
A: You're right, we are increasing our investment in renewable energy. The World Bank Group's renewable energy portfolio increased from $3.1 billion between fiscal years 2008-2009 to $6.6 billion in 2011-2012. Our International Finance Corporation, which lends to the private sector, has increased investment in new renewable energy from $627 million in 2010 to nearly $2 billion in 2011. The right mix of renewables depends on a country's resource endowment. Morocco is developing concentrating solar power, for example, while Kenya is investing in geothermal. What is common in all the green energy success stories is commitment by the government to policy incentives for investment in renewables.
Q: What is WBG's global strategy on energy efficiency and green energy development? What kind of strategy in this sphere does the WBG have for Russia?
A: Energy efficiency is the fastest way to make major reductions in CO2 emissions, and energy costs. The IEA estimates that between now and 2020, 72% of the reduction in CO2 emissions needed to keep global temperature rise below 2 degrees Celsius can be achieved by improvements in energy efficiency. With this in mind, it is no surprise that the share of energy efficiency lending in the World Bank Group portfolio has grown steadily since 2004. In the last four years, it has been over $1.5 billion every year - about 15-20% of total energy lending. Most of this growth has been in East Asia - Pacific and Eastern Europe - Central Asia. In Russia, we are working with commercial banks to create energy efficiency financing lines of business.
We are also working with local manufacturers, regulators and consumers to promote energy efficient appliances and products in ways that share risks and benefits. Finally, we are supporting municipal utilities' efforts to reduce credit risk where the potential for energy savings are high; this can help them gain access to the financing they need to make their facilities and operations more energy efficient.
Achieving energy efficiency goals depends on a determined commitment by government at all levels. It is worth noting, in this context, that former President Medvedev set a target to cut by 40% the energy intensity of Russia's economy by 2020. This is an important commitment. Widespread adoption of energy efficiency measures across buildings, industry, transport, electricity generation and heat supply sector could reduce energy consumption by up to 45% - a huge saving that would benefit all Russians.