Gas and the potential points of conflict

LNG battles are hotting up

Global LNG demand was 265 million tons in 2016, according to Royal Dutch Shell’s annual LNG outlook. LNG trade increased from 100 million tonnes in 2000 to nearly 300 million tonnes in 2017. Latest bulletins indicate that the global demand reached 330 million metric tons. This trend is expected to continue.

Brussels imported 194 billion cubic meters of Russian gas during 2017. Russia has been selling its natural gas for around $4.50 per million thermal units which is significantly lower than alternative sources. This fact alone might undermine the US efforts to get its LNG to Europe.

President Donald Trump is not happy. After his meeting with Jean Claude Junker the president of the EU commission in July 2018, Trump boasted that the Europeans want to buy US gas.

“They want very much to do that, and we have plenty of it,” Trump said, referring to the U.S. shale boom, which has unleashed record supplies of the heating and power-plant fuel. “They will be a massive buyer, and they will be able to diversify their energy supply.”

 LNG imports to Europe are poised to rise almost 20 percent by 2040 from 2016 levels, according to International Energy Agency. While Russia has long been the region’s top supplier, it’s now facing significant challenges from both the U.S. and Qatar.

THE CRITICAL QUESTIONS IS THE US COMPETITIVE WITH GAS FROM RUSSIA AND QATAR?

Meanwhile, in May 2018 President Trump criticized Angela Merkel the German Chancellor for supporting Russia gas project Nordstream 2.  Germany, as far as Trump is concerned, is captive to Russia because it’s getting so much of its energy from Russia” Trump said.

“Nord Stream 2” a proposed gas export pipeline from Russia to Germany, capable of exporting 55 billion cubic meters annually, and companion to the currently operational Nord Stream line. The project has significant geopolitical risks, including further deepening the reliance on Russian gas amid aggressive behaviour from Moscow in Europe and beyond.

The US is also looking for the lucrative growing South East Asian markets. Also Russian Gazprom the world’s largest gas producer has increased capital spending to record levels to build new pipelines. The $55bn Power of Siberia pipeline will start carrying gas 3,000km to China in 2019/2020. Meanwhile, Qatar is already doing good business in Asia and will compete for head to head with the US and Russia. Experts and analysts in the West believe that Qatar has the potential of becoming the dominant force in the export of LNG to Asia. Qatar has plans to increase production of LNG (liquefied natural gas) by 30 percent to 100 million tons from 77 million tons per year over the next few years becoming a top global player in the export of natural gas.

MEANWHILE IN MEDITERRANEAN TURKEY IS POISED TO BE A CRITICAL PLAYER:

According to media reports; the $40 billion Southern Gas Corridor (SGC), arguably the gas industry’s most significant and ambitious undertaking yet, involving seven governments and 11 companies.

The 3,500 kilometres pipeline corridor is one of the biggest infrastructure projects in the global oil and gas industry, bringing Caspian gas through three linked networks across Azerbaijan, Georgia, Turkey, Greece and the Adriatic Sea to southern Italy where it can be conveyed to European markets.

SGC has been pushed by the EU since 2008 as a strategic imperative to reduce the bloc’s dependence on Russian gas and has been bankrolled by EU and international funding, including loans from the Asian Infrastructure and Investment Bank, which counts Saudi Arabia and UAE as members.

TAP will not be up and running till early 2020 – the Turkish government will collect transit fees and other tariffs. Turkey doesn’t hide its ambition to become the energy hub in the region. No doubt this project will reduce Turkey’s dependence on Russian gas imports which account for 55% of Turkey’s demand. According to International Energy Agency, the amount of gas that will flow through SGC is small at about 16 billion cubic meters a year compared to the Russian gas purchased by EU in 2017 which amounted to 194 billion cubic meters. And Russia is not content with just pipelines. The country recently took a major step into the LNG market by launching the Yamal LNG terminal in the Arctic, financed by Russian gas producer Novatek with the help of France’s Total. The Yamal project will supply both Europe and Asia via sea routes.

THE GAS CONFLICT EAST OF THE MEDITERRANEAN

The Eastern Mediterranean has witnessed the first conflict of 2018, as developments at the end of 2017 were signaling worsening relationships between Turkey and the Greek Cypriot-Greece-Israel-Egypt and even Lebanon can be drawn into this messy conflict. Disputes over natural gas and oil resources discovered in the Eastern Mediterranean basin are the reason. At one time in the past, it was hoped that such discoveries would offer the chance for co-operation, peace, and prosperity. But the opposite is happening. Turkey objects to Nicosia exploiting the resources without consultation and /or approval of Turkey. There is a separate dispute between Turkey and Greece.

Last November Egyptian President Abdel Fattah al-Sisi visited Nicosia to discuss hydrocarbon resources in the region. Turkey dismissed the meeting as irrelevant.

To complicate matters for Turkey; “Italy, Greece, Greek Cypriot and Israel had already agreed on the construction of a gas pipeline from newly discovered fields. The project — dubbed “East-Med” — will cost some $6 billion. An over 2,000-kilometer-long (1,243-mile-long) pipeline will channel offshore reserves in the Levantine basin to Greece and Italy.”

The undersea pipeline is expected to channel natural gas from Israel’s Leviathan Basin and Greece’s 12th plot — also called Aphrodite — to Crete, and then to Europe via Greece.

One should also consider domestic developments in relevant countries when trying to measure the extent of a possible crisis.

Even back in 2017 Turkey had been accused of violating Cyprus water and Greek’s airspace. NATO is aware of the violation by one of its members. The question can NATO intervene? Unlikely. What about Egypt which sided with Athens and Nicosia for political reasons.

According to an Oil Price. Com report 7 January 2019 the EastMed gas pipeline between Cyprus, Greece and Israel will revolutionise the economies and geo-politics of the region. The project comes from an emerging alliance between the three countries who must move forward cautiously in the face of neighbouring States’ opposition”. Meanwhile the Houston Chronicle reported on 25th January 2019 that “Exxon Mobil was ready to drill a natural gas well in the eastern Mediterranean Sea, off the coast of Cyprus some three months earlier.. Then Turkey’s Foreign Ministry released a statement warning oil companies considering drilling in that area to “to act with common sense and to duly consider the realities on the ground.”

“Massive gas discoveries off the coasts of Egypt, Israel and Cyprus, led by international oil companies including Houston’s Noble Energy, Royal Dutch Shell and Exxon, are inflaming tensions in an already volatile region now facing the huge influx of wealth that comes with being the world’s next big energy play.”

Apparently Exxon Mobil, which went ahead with its plans, has so far avoided trouble. But the possibility of fighting breaking out in the Eastern Mediterranean has many in the oil sector worried. No doubt the tensions in the Mediterranean are causing a geo-political headache for all those concerned including major oil companies such as Exxon.

Nehad Ismail

Nehad Ismail is a journalist based in the United Kingdom. He writes on the economic issues particularly oil and gas. He has a special interest in the Middle East. He worked 15 years in the oil industry and 6 years in the media. He worked in a newspaper and in a TV channel presenting a political program between 2005 and 2010 (Arab News Network). His articles appeared in many esteemed media. He reviewed more than 12 books.
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