Pipelines used to be just a way to get oil or gas from Point A to Point B — mostly political locally, especially for environmental reasons. Sometimes, they are locally strategic, the way they are in Nigeria — want to get the government’s or the company’s attention? Blow up a pipeline. Increasingly, they are geo-strategic, for energy security reasons, not done in a financially sensible way. Pipelines are political.
Since the 1970s, access to oil has also been used as a weapon to express political displeasure, as with OPEC. Today, the pipelines in question are mostly gas. Oil can go by tanker, but natural gas is mostly transported by pipelines — it’s cheaper than liquefied natural gas. Nowadays when it comes to energy, everyone now is working to minimize the number of political choke points. Two ways to do this: maximize the number of oil producers, and vary the transit routes.
The political displeasure these days is Russian. For several years, Russia, which supplies varying (but significant) amounts of natural as to various European countries, has spent each winter in dispute over transit fees or other bilateral issues with members of the “near abroad” – especially Ukraine, through which most of its pipelines go. When it cannot resolve the problem through talk, it shuts off the gas to Ukraine and so to Europe. Sometimes a cut-off is expressly to voice political displeasure. This has made Europe desperate to diversify its gas sources, and Russia desperate to diversify its pipelines so that when it seeks to punish or leverage a dispute, it has choices that aren’t so costly. Hence the new pipelines. Everyone knows this.
Last week, Russia and Germany got the green light from Finland to build a 750-mile pipeline, Nord Stream (majority-owned by Gazprom) on the floor of the Baltic Sea, to entirely sidestep Eastern Europe. Russia’s second pipeline project,South Stream, would cross the Black Sea to Bulgaria, split and go on to Greece and Austria.
And the West has an alternate pipeline to avoid Russia itself, the well-known Nabucco, which would access gas from Central Asia (like Azerbaijan and Turkmenistan) as well as possibly the Kurdish region of Iraq (which would open up a whole new can of worms) via Turkey, ending up in Austria. Even better, to America (which supports Nabucco), it avoids Iran. But look at the difference in costs.
Nabucco’s estimated cost is about €8 billion with a completion date of 2014 while South Stream’s estimated cost is from €19 to €24 billion with a completion date of 2015. South Stream was launched in 2007 when Russia’s President Dmitry Medvedev was then Chairman of the Board of Directors of Gazprom, Russia’s largest company and the world’s largest gas producer.(In theory) Nabucco could carry some 30 billion cubic metres of gas a year. But that is only a fifth of what Russia exports to Europe; and it will not be finished until at least 2015. OilPrice.com and Mineweb 11-19-09
There’s an internal political stake as well: the New York Times reports that German Social Democrat Gerhard, now working for Gazprom and Angela Merkel support Nord Stream, but her former rival, Joschka Fischer, is backing Nabucco.
It’s not just Europe and Russia. The Economist reported July that Gazprom has signed a $2.5 billion deal with Nigeria. Of course, this doesn’t even touch on the Central Asia pipeline plans of China.
The completion in October 2009 of $400 million 188-km section in Turkmenistan of a 7,000 km natural gas pipeline that will reach China is an important step towards diversification. OilPrice.com/Mineweb 11-19-09
So what does this amount to? Just what you might think: a gas glut that will last a long time. Central Asia is coming online at speed, across the US gas and oil companies have been sinking huge sums investing in unconventional gas like shale gas, coalbed methane, etc. And that doesn’t even deal with green energy. These very expensive pipelines may have a hard time paying for themselves as gas stays dirt-cheap.
