<energy>, <energy>. <eco>

1. Caspian Energy Market in Transition
Mahmood Khaghani
Education & Research Institute – Iranian Chamber
of Commerce & Mines (ICCIM)
Bosphorus Energy Club 11th
October
2016

2. An Inflection Point – Peak Demand
“The Stone Age did not end for lack of stone, and the Oil Age will end long
before the world runs out of oil.” Zaki Yamani
Peak Demand - Energy is the only 'hard' or objective resource cost &
dollar cost of energy services has become systemically unaffordable
Energy Intensity - carbon fuel use per unit of energy as a service has
reached unsustainable levels eg US fracking, Canada tar sands
Fifth Fuel – the higher the oil & gas $ price the more profitable it is to
substitute with renewable energy or energy efficiency: the Fifth Fuel
2June 2016 Caspian Energy Grid – Silk Road

3. Peak Demand
Oil Producers squeezed between
- Immovable Object – Oil Price Cap (around $50/barrel)
- Irresistible Force – rising Exploration & Production (E&P) costs
- Conflict between resource sovereignty & commercial requirements
Conventional Options:
- Consolidate - does not solve the problem
- Switch to Gas - eg Shell
- Vertical Integration - Saudi US refinery, IOCs & major traders
- political (eg nationalisation), environmental, commercial risks
3June 2016 Caspian Energy Grid – Silk Road

4. Iran Post-Sanctions
Upstream oil & gas – colossal investment requirement for
regeneration of existing fields & development of new fields
Downstream energy – massive investment requirement in legacy &
new energy infrastructure for transition to low carbon economy
Increasing sales of oil & gas as a commodity risk flooding the market
Equity & debt instruments conflict with Iran resource sovereignty &
dollar investment unlikely even in the medium term
4June 2016 Caspian Energy Grid – Silk Road

5. Iran at the Crossroads
Least Resource Cost principle successfully demonstrated in action
since 1973 Oil Shock for resilience/energy security reasons
Iran is at a crossroads: Reform to the Left; Resistance to the Right
What is the way forward?
June 2016 Caspian Energy Grid – Silk Road 5

6. The Way Forward – Resource Resilience
Resource Resilience Organising Principle - Least Resource Cost
For any given consumption of energy as a service – mobility/transport;
heat/cooling; light; power the use of finite resources is minimised
Denmark mandated this principle and invested in renewable energy and
energy efficiency across all services: power, heat, transport & electricity
Danish GDP doubled while carbon fuel use & CO2 production has declined
significantly – but Iran & Denmark's fiscal systems very different!
June 2016 Caspian Energy Grid – Silk Road 6

7. Resource Resilience – Denmark
June 2016 Caspian Energy Grid – Silk Road 7

8. Iran's Smart Solution - Energy Swaps
Energy Swap
An Energy Swap is an exchange of an energy flow for another flow
Location Swap
A flow of energy into one location is exchanged for a flow of energy out of
another. eg the Caspian Oil Swap
Category Swap
A flow of energy of one type is exchanged for a flow of energy or value of
another type eg Iran gas for Armenian power
Hybrid Swap
A combination of Location & Category Swap eg international Oil for Product
Swap Iranian oil exchanged for Scottish oil products
8June 2016 Caspian Energy Grid – Silk Road

9. Transition through Gas
Natural Gas is the bridging fuel to a Low Carbon Economy and ECO region has the
greatest global natural gas reserves
For Iran to ship gas internationally whether via pipeline or LNG is extremely
inefficient, costly and potentially risky
Electricity is at the end of the Energy Value Chain “From Well to Wall.”
When the oil price fell 74% , and the gas price fell by 42% , the wholesale electricity
price fell by only 2 to 3% and the retail price fell by even less.
Cheapest energy is energy saved – Fifth Fuel - a Kilo Watt Hour of electricity saves 5
to 10 kWh of upstream energy in production, generation & distribution
9June 2016 Caspian Energy Grid – Silk Road

10. Power Generation Technology
Power Generation & Electricity Transmission efficiency has improved
dramatically in the last two years
Combined Cycle Gas Turbines (CCGT) generation is now 60% efficient
High Voltage Direct Current (HVDC) links are much more efficient
than Alternating Current (AC) links over long distances
HVDC is particularly suited to Caspian Sea, Black Sea marine links –
examples are UK North Sea BritNed, NorNed HVDC links
10June 2016 Caspian Energy Grid – Silk Road

11. Iran's Energy Grid – a Natural Grid?
Iran's energy grid transmits oil & gas fuelled power and oil & gas
Application of resource resilience principle will increase efficiency of
oil & gas production & use and implement decentralised renewable
energy
Iran's energy grid can be transformed from centralised National Grid
to distributed and resilient Natural Grid
Iran's energy grid must also address crucial environmental
combination of Water & Electricity – Least Water Cost
11June 2016 Caspian Energy Grid – Silk Road

12. ECO Regional Energy Grid
Oil for Products – optimising Kashagan flows
Gas for Power – Turkmen power generation & regional HVDC power
supplies
Hydro for Gas – inter-seasonal swaps between upstream and
downstream ECO nations
Virtual Transmission - CASS 1000 project
- dispatch & use power as locally as possible
- geographic swaps replace expensive, inefficient & vulnerable long
distance transmission
12June 2016 Caspian Energy Grid – Silk Road

13. Energy as a Service
Least Resource Cost – not Least $ or € Cost
Supply – not Sale
Co-operation not Competition – shared cost reduction not a race to
the bottom
Smart Markets - Intellectual Capital replaces Finance Capital
13June 2016 Caspian Energy Grid – Silk Road