the new Silk Road, an energy transition gold mine
In the 19th Century, German geologist Ferdinand von Richthofen popularised the name of the ancient trade routes between East and West as the Silk Road. However, both “silk” and “road” are misnomers, for the trade of spices, as well as cultural, political, religious and philosophical thought, was as consequential and the routes were both overland and maritime. Nevertheless, it is an evocative and enduring name for an exceptionally important network that is estimated to have been in existence, in one form or another, from the 2nd century BCE to the 18th century. In 2013, President Xi Jinping announced the Belt and Road Initiative (BRI), previously known as the One Belt One Road initiative, a global scale infrastructure, transport and energy project to link China and countries across Asia, Africa, Europe, the Middle East and Oceania through trade (see fig 1). Reviving the overland and maritime corridors, the BRI has also been referred to as the New Silk Road.
Looking specifically at energy, there are significant BRI fossil fuel developments, such as Yamal LNG, in which CNPC has a 20% interest; Power of Siberia gas pipeline, taking gas from Yakutia, Siberia to China; and the central Asia-China gas pipeline, which takes gas from Turkmenistan and Uzbekistan through Kazakhstan to China. While not explicitly stated, the BRI also serves as a means to strengthen China’s energy security through trade deals, like the aforementioned pipelines and the recent agreement with Qatar Petroleum to supply 1 MTPA of LNG for ten years, and energy diversification. Partly in support of domestic energy development and partly in support of China’s target of carbon neutrality by 2060, there has been an increased focus on renewable power investments: in 2020, wind, solar and hydropower investments accounted for 57% of BRI energy investments.
Fig 1 – The BRI and China’s International Trade (Merics, March 2018)
As China and its partners look to revitalise this historic network through transport, energy and trade, while committing to significant climate goals, we look at some of the opportunities the BRI brings to Central Asia in terms of integrated energy transition developments.
Starting in Kazakhstan, while not a BRI project, the recent announcement of an MOU between the Kazakhstan Investment Promotion Agency and Svevind Energy to exploit the vast wind and solar potential of the Kazakh Steppe and develop one of the largest green hydrogen facilities highlights the huge range of opportunities presented by a development such as this on one of the main BRI corridors. While the project is currently nascent, there are only generic statements regarding the intended market for the hydrogen, but initial press makes reference to its use in the transport or railway industry. Considered in the context of the road and rail elements of the BRI and China’s focus on hydrogen fuel cells for heavy trucking, this seems like a plausible and potentially attractive use case. The same would apply across the Eurasian Steppe, where the Global Wind Atlas shows significant potential for wind developments in China, Mongolia, Russia, Turkmenistan, Uzbekistan and even offshore developments in the Caspian Sea. The European Commission’s JRC Science for Policy Report, Optimal Paths for Electricity Interconnections between Central Asia and Europe, published in 2020, also identifies significant solar potential in Eastern Uzbekistan and Turkmenistan of 1500-1800 kWh/kWp. Using this natural resource to drive green hydrogen production could yield a hydrogen fuelling infrastructure for heavy trucking from China to Europe, although one must acknowledge the jury remains out on the use of hydrogen for transportation.
Moving further west, Turkey has one of the highest potentials for wind in Europe, with an estimated economic potential of 10,000 MW. Turkey has committed to reduce emissions by 21% by 2030. This will be in part enabled by increasing electricity generation by solar power to 10GW and by wind power to 16GW. In 2016, electricity and heat were the most significant contributor to Turkey’s emissions at 37%, or 146.5m tonnes CO2e, but industry and manufacturing/construction were also significant at 24%, or ~95m tonnes CO2e. This presents the opportunity to again produce hydrogen to address hard to abate sectors like the steel industry. Indeed, as the world becomes more carbon conscious, the ability to produce “green” steel could be used to increase Turkey’s role as a steel exporter (in 2018, it was the 8th largest steel exporter globally).
This decarbonisation of steel or other heavy industries is an opportunity that extends across the Eurasian Steppe. While domestic steel production may be relatively small, all these countries are located in a position where they can export hydrogen to China. As the largest steel manufacturer by some distance (996.3m tonnes in 2019, compared to 111.2m tonnes produced by the second largest producer, India), emissions from this sector will be critical to China’s goal of Net Zero emissions by 2060. Importing green hydrogen to use in hard to abate sectors, such as the steel industry where coking coal is replaced by hydrogen as a means to decarbonising steel mills, or in the cement industry where a hydrogen heat source may be more cost effective than electrification, could be an important pathway to serve this goal. Recognising the difficulties posed by transporting hydrogen, it is to be noted that the Svevind Energy press release identifies ammonia as a potential energy vector. Ammonia is liquid at ~-33C (at 1 bar pressure), as opposed to ~-253C for hydrogen, and can be transported far more easily. Combine this with the burgeoning development of ammonia as a fuel in marine applications and the importance of maritime routes in the BRI, it is not too much of a leap to envisage an ammonia market being developed along the BRI.
None of this should ignore the role of energy related emissions: for example, given that 82% of total GHG emissions in Kazakhstan are energy related, it would perhaps be better to use the abundant wind and solar resources to tackle these emissions. However, this is not without challenges as many of the Central Asian countries, including Kazakhstan, Azerbaijan and Uzbekistan, have economies dominated by hydrocarbons. The diversification of the energy system must take these economic forces under consideration, which will require legislation such as China’s Net Zero commitment and the Kazakh government’s “green energy concept” in 2013, which includes a target of 50% electricity from renewable sources by 2050. This legislative drive must be supported by addressing the technical factors, of which there are two key elements: (i) variability and (ii) transmission losses. Here hydrogen production comes back into play, potentially using it as an energy storage mechanism to smooth out the variability of renewables. Yet, the round trip efficiency is so low (less than 25%) that producing green hydrogen only to burn it and produce electricity is best described as thermodynamic vandalism; it is only when we factor in the pressing temporal concerns of the climate emergency that we consider this waste of energy to be a viable option. Alternative energy storage solutions may be more attractive: battery energy storage, CAES and LAES, are discussed in this io article: the energy storage riddle - how do you squeeze a balloon?.
An interesting alternative proposed by the European Commission’s JRC Science for Policy Report, Optimal Paths for Electricity Interconnections between Central Asia and Europe suggests that the variability could be addressed by leveraging the Soviet era grid to incorporate a blend of energy sources from across the Central Asian region, including fossil fuels, new variable renewable energy and existing renewable infrastructure in Tajikistan and Kyrgyzstan (hydropower), to optimise balancing of the grid. This is an attractive solution, but the aging infrastructure is thought to have transmission losses as high as 20% and an upgrade of this grid and interconnections would need to take place, requiring multi-national co-operation and investment. With all these options, there is no one-size-fits-all answer; each decision comes with trade-offs and must be analysed as a holistic system in order to best identify the optimal use of this solar-wind-hydrogen/ammonia development in terms of value drivers, be they economic, environmental, social or a combination of all.
Across Central Asia and Eastern Europe, there is an attractive blend of resources ranging from renewables such as wind, solar and hydro to extensive fossil fuel reserves. As we move through the energy transition and address the climate emergency, these resources become of global importance. However, there are technical and economic challenges to each, and the optimal solution will need to be a balance of them all, including fossil fuel resources. To achieve international climate commitments, the emissions from fossil fuels must be reduced. A shift from coal to natural gas is one reduction pathway, which is why China, as part of BRI, is developing natural gas pipelines such as “Power of Siberia”. The international energy system has always been interconnected - the need to diversify from fossil fuel resources does not change this. Co-operation, investment and trade are critical to achieving the climate change goals of all nations; similarly, they are core to the BRI and considering diversification of the energy system through the lens of the BRI presents an interesting picture of the challenges and opportunities we face. It also emphasises the need for a trade-off between technology, economics and strategy; this requires a system level understanding to optimise decisions that are relatively more granular.
At io consulting, our systems modelling approach is designed to evaluate these trade-offs and balance the technical, economic and strategic interdependences. Combining this with our expertise and track record in hydrogen, CO2 transportation, energy storage and CCUS projects, and our parents’ technology and EPC expertise, io is uniquely positioned to advise energy companies, utilities, developers, investment companies and nation states on the systemic interdependencies of energy transition. This approach enables our clients to unlock energy transition opportunities on a global scale and can pave the way for the optimal development of multi-national low and zero carbon infrastructure.
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