Geopolitics of natural gas

Geopolitics of natural gas, a joint study by the Center for Energy Studies at Rice University’s Baker Institute and Harvard University’s Kennedy School on the geopolitical implications of natural gas. October 2013.

http://bakerinstitute.org/center-for-energy-studies/geopolitics-natural-gas/

About the study :

Some of the most dramatic energy developments of recent years have been in the realm of natural gas. Huge quantities of unconventional U.S. shale gas are now commercially viable, changing the strategic picture for the United States by making it self-sufficient in natural gas for the foreseeable future. This development alone has reverberated throughout the globe, causing shifts in patterns of trade and leading other countries in Europe and Asia to explore their own shale gas potential. Such developments are putting pressure on longstanding arrangements, such as oil-linked gas contracts and the separate nature of North American, European, and Asian gas markets, and may lead to strategic shifts, such as the weakening of Russia’s dominance in the European gas market.

Against this backdrop, the Center for Energy Studies of Rice University’s Baker Institute and the Belfer Center for Science and International Affairs of Harvard University’s Kennedy School launched a two-year study on the geopolitical implications of natural gas. The project brought together experts from academia and industry to explore the potential for new quantities of conventional and unconventional natural gas reaching global markets in the years ahead. The effort drew on more than 15 country experts of producer and consumer countries who assessed the prospects for gas consumption and production in the country in question, based on anticipated political, economic, and policy trends. Building on these case studies, the project formulates different scenarios and uses the Rice World Gas Trade Model to assess the cumulative impact of country-specific changes on the global gas market and geopolitics more broadly.

Parts of the study :

• The Geopolitics of Russian natural gas / Tatiana Mitrova . Baker III Institute for Public Policy, Rice University, April 2014, 100 p.

http://bakerinstitute.org/files/7356/

Introduction :

Russia is one of the world’s leading producers of primary energy resources, and is especially well known for its strong position in the global gas markets. It holds the world’s largest gas reserves and is currently the world’s second gas producer after the United States, which recently outstripped Russia because of the shale revolution…

•  The Russian Gas Sector: A Political Risk Case Study / Robert Johnston & Emily Stromquist. Baker III Institute for Public Policy, Rice University, January 2014, 35 p.

http://bakerinstitute.org/files/6155/download/

Paper’s introduction :

Russia has long been a preeminent global producer and supplier of gas, but the recent evolution of global market dynamics has begun to erode this status. Now, it finds itself at a crossroads that could determine its fate in this evolving market. Faced with the US shale gas revolution, competition from global LNG suppliers and new pipeline projects, an uncertain demand outlook in Russia’s once captive European market, and slow penetration of high growth Asian markets, Russia may no longer be able to thrive at status quo and must take decisive steps to devise a strategy that addresses these challenges and ensures its continued role as a leading global gas producer and exporter…

•  The geopolitics of Australian natural gas development / Donald D. Ripple. Baker III Institute for Public Policy, Rice University, January 2014, 42 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasAustralia-011414.pdf

Paper’s introduction :

Australia will have an impact on the geopolitics of natural gas over the next decade and beyond, no matter which scenario of the future comes to be. Australia is geographically well- positioned to continue to engage with the Asia-Pacific energy markets where more than 60% of the global trade in LNG is transacted. And it has very supportive political and business communities motivated to monetize its substantial natural resource wealth. Australia also continues to provide an alternative source of energy to the region from a mature, politically stable democracy, where energy export decisions are driven by commercial, economic motives rather than political…

•  Turkey’s energy policy and the future of natural gas / Soner Cagaptay. Baker III Institute for Public Policy, Rice University, December 2013, 35 p.

http://bakerinstitute.org/files/4913/download/

Paper’s introduction :

Buoyed by a decade of economic growth, Turkey is more prosperous than ever before. At the forefront of this transformation, Turkey’s Justice and Development Party (AKP) has reaped the rewards of economic success and political prestige. But as the party strives to institutionalize its gains, it faces growing challenges at home and abroad. Domestic polarization erupted into massive unrest during the Gezi protests of June 2013, potentially threatening Turkey’s hard-won reputation for political stability. Alongside this domestic trend, Turkey’s region is perpetually dangerous with spillover from Syria’s civil war and worsening fractionalization in Iraq at the forefront of Ankara’s regional concerns…

•    Turkmenistan: Real Energy Giant or Eternal Potential? / Martha Brill Olcott. Baker III Institute for Public Policy, Rice University, December 2013, 32 p.

http://bakerinstitute.org/files/4779/download/

Paper’s introduction :

Turkmenistan has enormous gas reserves, estimated at 13.4 trillion cubic meters (473.2 trillion cubic feet), and is generally ranked fourth globally, behind Russia, Iran, and Qatar. The country’s oil reserves, estimated at 600 million barrels, are substantially smaller. The country has announced plans to increase gas production to 230 billion cubic meters per year (bcm/y), or 8,122 billion cubic feet per year, by 2030 — a threefold increase from its previous production high in 1990, and over 3½ times production levels in 2012. The country obviously has the reserves to justify the optimism of its announced plans, but the natural challenges of exporting gas from this land-locked country and the self-imposed difficulty of doing business in the republic combine to make it far from clear whether Turkmenistan will be able to realize its full potential in the global gas market…

•   The Twilight of Mexico’s State Oil Monopolism: Policy, Economic and Political Trends in Mexico’s Natural Gas Industry. Baker III Institute for Public Policy, Rice University, December 2013, 37 p.

http://bakerinstitute.org/files/4758/download/

Paper’s introduction :

While Mexico possesses only 0.03 percent of the world’s proved reserves of conventional natural gas, it has been ranked fifth place taking into account its prospective technically recoverable shale gas resources—545 trillion cubic feet (TCF) according to a survey by the US Department of Energy (EIA 2011a), published in 2011 and revised in 2013. In the revised survey, Mexico ranks after China (1,115 TCF), Argentina (802 TCF), the United States (665 TCF), Algeria (707 TCF), and Canada (573 TCF) (EIA 2013, 10), out of a total of 41 countries whose resources were assessed. If the figures are confirmed to be accurate, North America is bound to become a major non-conventional gas powerhouse in the years to come…

•  Natural gas in the Republic of Iraq / Al-Khatteeb, Luay J. Baker III Institute for Public Policy, Rice University, November 2013, 49 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasIraq-111813.pdf

Paper’s introduction :

Natural gas has been playing an increasingly significant role in the energy mix of the Middle East and North Africa region over the last decade. Middle Eastern energy consumption is steadily growing—beyond 10 percent per annum in some cases—driven by economic and population growth. Gas is also becoming the main feedstock for power generation in the MENA region, meeting 67 percent of the regional demand for electricity. Among the current and potential regional gas producers, Iraq is better positioned than many countries that recently experienced the “Arab Spring” and its troubling dynamics. The country also benefits from being located in the middle of a gas-thirsty region—a potential gas market that comes with its own challenges as a heavy consumer and as a critical transit territory.

•  The Gulf Cooperation Council natural gas conundrum: geopolitics drive shortages amid plenty / Amy Myers Jaffe, Jareer Elass & Keily Miller. Baker III Institute for Public Policy, Rice University, October 2013, 31 p.

http://belfercenter.ksg.harvard.edu/files/MO-CES-pub-GeoGasGCC-102513.pdf

Paper’s introduction :

The significance of the six Gulf Cooperation Council (GCC) states in the context of the global natural gas market cannot be overstated. One only needs to consider that the GCC states’ proven gas reserves comprise nearly a quarter of the world’s reserves, surpassing 1,485 trillion cubic feet (Tcf). The GCC is a major global supplier of liquefied natural gas (LNG) and its prolific reserves suggest that export trade could be even larger. Three of the six GCC states—Qatar, Saudi Arabia, and the United Arab Emirates—comprise nearly 94 percent of the region’s total gas reserves, and more than 60 percent of proven reserves in the GCC are concentrated in Qatar alone. Qatar is the world’s largest LNG supplier and its influence on the global natural gas market is significant. Abu Dhabi and Oman are also sizable LNG exporters…

• The Future of Long-term LNG Contracts / Peter Hartley, Peter. Baker III Institute for Public Policy, Rice University, October 2013, 43 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasLNG-103113-3.pdf

Executive summary :

Long-term contracts have long dominated the international market for LNG. Since 2000, however, the proportion of LNG-traded spot or under short-term contracts has grown substantially. Long-term contracts between exporters and importers of LNG have the advantage of reducing cash flow variability and thereby increasing the debt capacity of large, long-lived capital investments for both the exporter and the importer (debt has tax advantages vs. equity financing). However, long-term contracts also limit the ability of the contracting parties to take advantage of profitable short-term trading opportunities…

•  Political economy of shale gas in Argentina / David Mares. Baker III Institute for Public Policy, Rice University, November 2013, 40 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasArgentina-110113.pdf

Paper’s introduction :

With the third largest shale gas reserves (802 trillion cubic feet of technically recoverable gas, behind China),1 as well as a developed domestic gas market and export infrastructure, Argentina is a potentially important player in the global gas market. Not only has the country been in the past a major supplier of natural gas to neighboring Chile, Uruguay, Brazil, and Bolivia, but also, its domestic use is significant enough that it has become an important importer of natural gas via pipeline from Bolivia and built two LNG import facilities…

•  The changing geopolitics of natural gas: The case of Algeria / Layachi, Azzedine. Baker III Institute for Public Policy, Rice University, November 2013, 44 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasAlgeria-110113.pdf

Paper’s introduction :

Algeria, the largest country in Africa, is one of the three biggest producers of hydrocarbons on that continent, the other two being Libya and Nigeria. It produced hydrocarbons even before its independence from France in 1962. Its entire economy was built around such resources, and its exports are mainly oil and natural gas. After major capital investments in these industries in the 1960s and 1970s, it quickly grew into a major supplier of these energy products to Europe and other markets, including the United States. In the region of North Africa (also known as the Maghreb, Libya is the only other major oil and gas producer whose key market is also primarily Europe, particularly Italy…

•  Charting China’s Natural Gas Future / Trevor Houser and Beibei Bao. Baker III Institute for Public Policy, Rice University, October 2013, 33 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasChina2-103113.pdf

Paper’s introduction :

China’s rise has reshaped international energy and commodity markets. Over the past decade, China has accounted for more than half of global energy demand growth and today consumes more than half of the iron ore, cement, copper, and a host of other commodities produced around the world. Natural gas markets, however, have been less impacted by this China-led boom. Natural gas accounts for only 4% of energy demand in the coal-rich Middle Kingdom, compared to more than 20% globally. And until recently China produced as much natural gas as it consumed…

• Natural gas in China / Steven W. Lewis. Baker III Institute for Public Policy, Rice University, October 2013, 34 p.

http://belfercenter.ksg.harvard.edu/files/CES-pub-GeoGasChinaLewis-102913.pdf

Paper’s introduction :

The People’s Republic of China (PRC) is important in the global gas economy because it is tipped to become one of the largest importers of natural gas, and if it is successful in developing shale and other unconventional gas, it could become a major gas producer in its own right. Related, because China is a major adopter of new technologies, including energy efficient ones, if it makes strategic investments in new uses of natural gas—such as natural gas cars—it could become the vanguard market that facilitates the adoption of technologies that are beneficial for global markets…

• Natural gas in the United States / Michael A. Levi. James A. Baker III Institute for Public Policy, Rice University, October 2013, 22 p.

http://bakerinstitute.org/files/4262/download/

Paper’s introduction :

The United States is at once a massive and marginal player in the world of natural gas. As of 2011, it was the world’s largest consumer of natural gas, using over 24 trillion cubic feet (Tcf), 36 percent more than Russia, the second largest consumer.1 The same year, it produced 23 Tcf of  natural gas, barely 2 percent less than Russia, then the largest producer. No other country came  close: the third largest consumer, China, used only 4.6 Tcf of gas, while the third largest  producer, Canada, produced only 5.7 Tcf. The United States is also the world’s fastest growing  natural gas producer, bringing more than 4 Tcf of new production online in the five years ending in  2011, more than double the nearest competitor, Russia. Its consumption growth, at nearly 2.7 Tcf in the five years ending in 2011, has (tied with Russia and China) also led the world…

•  Politics of natural gas development in the European Union / Andreas Goldthau. James A. Baker III Institute for Public Policy, Rice University, October 2013, 44 p.

http://bakerinstitute.org/files/4259/download/

Paper’s introduction :

Europe is one of the largest natural gas markets in the world, and it is the world’s largest import  market.1 In 2011, the EU-27 gas market stood at 448 billion cubic meters (bcm), second only to the  US market of 690 bcm (BP 2012). Europe’s domestic natural gas production has consistently decreased  over the past years, and stood at some 168 bcm in 2011 (Eurogas 2012). As a corollary, Europe’s  share of imports in European gas consumption has grown from 48.9 percent in 2000 to 62.4 percent in  2010 (Eurostat 2012). Most of the gas imported to the EU is supplied by pipeline, but a growing  share—15 percent in 2011—is supplied by Liquefied Natural Gas (LNG). The EU’s largest external  sources of natural gas are Russia at 24 percent of total imports, Norway at 19 percent, Algeria at  9 percent, and Qatar at 8 percent (Eurogas 2012). Among these, Norway is a member of the European  Economic Area (EEA) and therefore part of relevant EU regulatory frameworks. The only external  supplier enjoying a significant or even dominant position in both Western and Eastern European  countries is Russia. Russia gained importance in Western European (i.e., by then EU-9) gas supplies  since West Germany inked its first long-term gas contracts with the USSR in the early 1970s. In the formerly communist EU member states, Russia  retained its role as a dominant gas supplier after the fall of the Iron Curtain. Here, dependency  rates are up to 100 percent of some countries’ imports (see Figure 1). Europe’s high dependence on  foreign sources of natural gas, notably from Russia, has caused security concerns among observers  and the EU’s allies.2 Several observers, however, also point to the interdependent nature of  EU-Russian gas relations (Finon and Locatelli 2008; Goldthau 2008)…

•  The Changing LNG Situation in Japan After March 11 / Ken Koyama. James A. Baker III Institute for Public Policy, Rice University, October 2013, 34 p.

http://bakerinstitute.org/files/4255/download/

Paper’s introduction :

Japan is the world’s largest liquefied natural gas (LNG) importer. In 2010, even before the events of March 11, Japan’s LNG imports reached as high as about 93.5 billion cubic meters (BCM), which accounted for 31% of global LNG trade. After the earthquake and tsunami on March 11, 2011, and the Fukushima nuclear accident that followed, Japan’s LNG import volume significantly increased to offset the decline in power generation from Japanese nuclear power plants. This substantial increase of imports in the world’s largest LNG consumer is no doubt a very important element influencing the global LNG and natural gas market as well as the geopolitics of gas. Furthermore, uncertainty regarding the future of nuclear power in Japan was an important element affecting Japan’s long-term energy portfolio and thus its long-term gas/LNG demand. Various political, social, and economic factors are at work behind Japan’s energy debate, which then attracts global attention. Given these circumstances, this paper examines the current status of Japan’s energy and gas market, influential political and economic factors determining the future of LNG/gas demand in Japan, and possible long-term scenarios of LNG/gas and energy in Japan…

•  Natural Gas in India: Difficult Decisions / Charles Ebinger and Govinda Avasarala. James A. Baker III Institute for Public Policy, Rice University, October 2013, 30 p.

http://bakerinstitute.org/files/4258/download/

Paper’s introduction :

In a speech in March 2012, Indian Prime Minister Manmohan Singh declared “expanding the use of natural gas in India is one of the most important and immediate ways of responding to the challenges of energy security and the management of climate change.”1 Although the sentiment was not new—the Indian government pushed natural gas as the fuel of the future in a 1997 hydrocarbon policy review—it reflected India’s growing commitment to a new fuel source.2 The International Energy Agency (IEA) projects that India’s natural gas demand will grow by 4.2 percent per year to 2035.3 At this rate, domestic natural gas demand will grow from 5.3 billion cubic feet per day (bcf/day) in 2012 to nearly 18 bcf/day by 2035.4 While coal and oil, which account for roughly two-thirds of India’s energy demand, will remain the pillars of India’s energy sector, policies relating to India’s natural gas sector will be important to maintain the country’s economic growth…

 

 

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