Gulf and European Energy Supply Security - Feem-project.net

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Energy Security: Potential for EU-GCC Cooperation be changed. The interdependence of producers and consumers is a fundamental feature of EU gas supplies. On the other hand, if the flow is interrupted or halted, the consuming country experiences great difficulties in accessing other suppliers. The situation becomes particularly dangerous when the country does not possess sufficient storage capacities. In that case, the country is left with no gas at all and is forced to direct its consumption to alternative energies. This is precisely what happened in the Balkan region following a dispute between Russia and Ukraine in 2008-2009. 1.1 Armed Conflicts So far, no major gas-producing country has been involved directly in a major inter-state conflict (with the exception of the Russia-Georgia war of 2008). In the case of armed conflicts involving oil-producing countries, the situation has proved potentially dangerous even for third parties located in the vicinity of the conflict area. In 1984, for example, during the Iran-Iraq war, Saudi and Kuwaiti oil tankers were attacked while crossing the Arabian Gulf. 2 At that time, Japan was in the first phase of negotiating an LNG deal with Qatar; the negotiations were interrupted and only resumed a decade later. During the 2009 Russia-Georgia war, Georgian officials claimed that Russian bombing had targeted the Baku- Tbilisi-Ceyhan oil pipeline. Close to this pipeline also flows the Baku-Tbilisi-Erzurum gas pipeline (South Caucasus), while other important proposed pipelines could follow the same route. Although the allegation turned out to be false, it caused concern in Europe as it showed that a supply axis was under the threat of collateral damage from a conflict. However, looking only at countries officially at war gives an incomplete picture as the majority of ongoing conflicts today do not fall within the traditional definition of war. 3 Asymmetrical conflicts appearing within the environment of a civil or intrastate war represent the most important category of armed conflicts now. This has repercussions on the understanding of the security of gas supply, as a producing or transit country that is not per se involved in a war can still represent a threat when a part of its territory is affected by conflict. This is 4 particularly the case if the physical infrastructure lies close to combat zones or within reach of a faction fighting the central government. It should be underlined that although no major gas producer is currently involved in a traditional war, many are affected in varying degrees by internal conflicts. War, therefore, could be an important risk for gas trade if: • a producing or transit country is directly involved in the conflict • a producing or transit country is located in a region close to the conflict • a gas pipeline takes a route affected by the conflict On the basis of historical experience, however, it can be said that armed conflicts, while they have greatly impacted prices and the development of new infrastructure, have rarely been the cause of a major physical disruption. To come back to the example of the 2008 Russia-Georgia war, all the variables tended to indicate a military intervention threatening the oil and gas transportation infrastructure; but nothing happened, showing that the effects of an armed conflict on the gas infrastructure are highly unpredictable and not always damaging. 1.2 Political Instability The risk associated with regime change in a producing country is linked to the possibility of consequent policy changes affecting gas supplies. Political instability in gas-producing countries has never resulted in a cut-off of the physical flow of gas. However, in some cases, newly-established governments have forced gas buyers to enter into a renegotiation of the existing contracts. However, this is generally the exception as economic interests take primacy over political or ideological interests. The governments of producing countries tend to protect their reputation as reliable suppliers. To illustrate the risk caused by political instability, we may refer to two contrasting examples: first, Algeria after the death of President Boumedienne and second, Qatar in the mid-1990s. Following the death of President Boumedienne in 1978, a new administration took charge. They
had a drastically different vision from that of the Boumedienne government concerning the country’s natural resources. Building on the success of the OPEC, Algeria decided to apply a strategy where high prices were to replace large volumes. The ruling party also held the belief that national natural resources had to be directed toward the fulfilment of long-term domestic requirements and the constitution of strategic reserves. 4 The direct consequence was a push to get a vigorous increase in the gas export price. When the pipeline to Italy was ready to be operational at the end of 1980, Algeria demanded that the prices received at the Tunisian border be increased by $2 per mmbtu from the price negotiated in 1977 which was $3.5 per mmbtu. The dispute escalated as ENI refused the request. Algeria stopped payments due to Italy for the construction of the pipeline and Italy ordered that all Italian construction and industrial projects in Algeria be frozen. As Aïssaoui notices, the battle became an attempt to change the netback pricing formula for oil-gas price parity. Italy had to cede and accept a price of $5.13 per mmbtu for gas delivered to it, and some other European countries importing gas from Algeria also had to accept the modification of the pricing formula. Eventually, the damage done to Algeria’s reputation by this issue of breach of contract was more significant than the short-term monetary gains made by the country. In contrast, the Qatari experience proves that sometimes even when countries undergo changes at the level of the head of state, no disruption of gas export conditions appears. In 1995, as the first trains of LNG shipment from the Qatari North field to Japan were almost finalized, the Crown Prince of Qatar Shaikh Hamad bin Khalifa Al-Thani deposed the Emir, his father Shaikh Khalifa Bin Hamad Al- Thani, in a non-violent coup. The new ruler was a proponent of the development of gas exports and privileged good relations with the West. Hence, no alteration of the contractual obligations took place. The death of the President of Turkmenistan Saparmurat Niyazov in 2006 also raised questions concerning the future direction of the country. Many saw this event as the opportunity for a radical Geopolitical Issues of Europe’s Future Gas Supply adjustment of the Great Game going on in Central Asia over the access to natural resources. Yet the new government did not significantly alter the objectives of Turkmenistan. Historical evidence tells us that rapid and profound changes at the top in producing countries have very rarely resulted in the disruption of natural gas exports. Bilateral gas contracts generally create favorable conditions for both parties and tend to be resilient in case of political instability. 1.3 Commercial Disputes Commercial disputes have been the principal cause of disruptions of gas flows lately and should thus be considered one of the main risks for the EU. As a matter of fact, it is the only threat that has actually materialized and has caused insecurity in the recent past such as in the 2006 and 2009 Russia- Ukraine gas crises. The political economy of gas trade gives the bargaining power first to the customer, but then the leverage shifts into the hands of the producing country, which knows that once the pipeline has been constructed, the funds already invested being extremely large, the customer needs a steady cash flow. Therefore, the customer needs the gas to keep flowing in and cannot afford a cut; it will thus accept an increase of the price asked by the producer. Vernon, 5 and later Victor et al. (2003) have referred to this phenomenon as the “obsolescing bargain.” 6 These authors list the risks embedded in the development of a cross-border pipeline project: • The investment climate is the primary factor to be overviewed • The involvement of a transit country can • complicate the negotiations Gas infrastructure in the off-take markets needs to be sufficiently developed to allow a satisfactory off-take quantity to be introduced into the market and to render the pipeline profitable • The off-take price of gas also needs to be competitive compared to incumbent fuels (such as coal or hydroelectric generating stations) • Partner countries along the gas value chain profit from being linked to international institutions, which reduce the transaction costs and ease the
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Contents Introduction 5 I. The Euro
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Energy Security: Potential for EU-G
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Page 73: SESSION IV: LNG and Gas Supplies to
Page 77 and 78: now, China has preferred the LNG op
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Page 81 and 82: 70bcm/yr by 2020. Even if only a fr
Page 83 and 84: that Russia and China have started
Page 85 and 86: (Parliament) which favors the use o
Page 87 and 88: of unconventional gas, has already
Page 89 and 90: Geopolitical Issues of Europe’s F
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Page 93 and 94: SESSION V: Renewable Sources in EU-
Page 95 and 96: • technologies, overall technical
Page 97 and 98: Figure 2: Overview of Opportunities
Page 99 and 100: onshore (378 TWh/yr), large-scale h
Page 101 and 102: world. Hence, renewable energy supp
Page 103 and 104: case. Figure 8 shows the developmen
Page 105 and 106: Overview of RES Characteristics and
Page 107 and 108: keep the RES surcharges for the ene
Page 109 and 110: in the electricity sector, particul
Page 111: References • • • • • •
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