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Energy Security: Potential for EU-GCC Cooperation Only countries which respond positively to these three criteria may be considered potentially important future supply sources. Domestic consumption will be the primary factor that will determine the volumes of natural gas available for export by the Gulf countries and will certainly constrain future exports. Countries with significant oil production – such as Saudi Arabia, the UAE and Iran – or wishing to develop domestic industries (petrochemicals) and infrastructure (power plants and desalination facilities) will use gas either to re-inject it in oil fields or as a substitute to oil for the domestic economy. Consequently, the share of gas available for export could be extremely low (close to 20 percent, if not less). Saudi Arabia, in particular, could be an important exporter of gas but has a policy to reserve gas for domestic consumption. Other producers from the Gulf, such as Kuwait and Oman, have produced limited quantities of gas so far and are not likely to become major exporters. Political instability is the greatest in Iraq and Iran. Iraq is just slowly coming out of a seven-year war and is as far as a country can be from being a stable state presenting the attributes of a solid government and a unified population. As noted by Stansfield: 22 Iraq has fractured into regional power bases. Political, security and economic power has devolved to local sectarian, ethnic or tribal political groupings. The Iraqi government is only one of several ‘statelike’ actors. The regionalization of Iraqi political Table 2. Gulf Countries’ Proven Reserves Natural gas: Proved reserves at end 2008 Trillion cubic Share of metres world total Iran 29.61 16.0% Qatar 25.46 13.8% Saudi Arabia 7.57 4.1% United Arab Emirates 6.43 3.5% Iraq 3.17 1.7% Kuwait 1.78 1.0% Oman 0.98 0.5% Yemen 0.49 0.3% Bahrain 0.09 (Source: BP 2009) 4 life needs to be recognized as a defining feature of Iraq’s political structure. Moreover, the recent departure of US troops from the Iraqi soil is in itself a supplementary cause for concern, as this event could lead to even more instability. Oil production in Iraq is unlikely to reach the levels prevalent under the Saddam Hussein regime any time soon. This applies to gas even more because of the higher complexity of the infrastructure required. Nevertheless, Iraq should not be dragged out of the natural gas geopolitical map, as the northern side of the country (Kurdistan) enjoys a certain degree of autonomy and could reach a higher level of oil and gas productivity than the rest of the country. Kurdistan could be seen as one of the major suppliers of the Nabucco project. Moreover, from a Gulf perspective, Iraq is the shortest land route towards Turkey and Europe. Relying on a pipeline linking Qatar to Turkey through Iraq seems an unwise prospect over the short term because of the insecure environment in Iraq; but this solution must not be discarded though its potential implementation will depend on the political evolution of the region. It is difficult to foresee the evolution of Iran, but although the country experienced episodes of violence and social unrest recently, after the contested re-election of President Mahmoud Ahmadinejad, the regime holds the reins of power firmly and it is difficult, although not impossible, to foresee a drastic alteration of its policy. What is more important than the protests in the streets of Tehran are the power games played behind the scenes between the clerical leaders, opposition parties and the leader of the Expediency Discernment Council (Akbar Rafsanjani). These actors have often supported diverging views and policies which have prevented major advances from taking place. Instead, in most cases, these differences have led to stalemates and prevented the development of major infrastructure, with the paradoxical consequence that Iran has failed several times to honor its commitments in gas-exporting projects. Gas exports from Iran remain controversial and a strong current exists in the Iranian Majlis
(Parliament) which favors the use of gas exclusively for domestic consumption. While the government authorities officially favor export projects and ostensibly promote them, in fact the only operational export project is the pipeline to Turkey, which has witnessed throughput shortfalls in winter, when gas is required by the domestic Iranian market. On the foreign relations side, Iran is in a difficult situation because of the nuclear issue. The enrichment of uranium and its potential military use are posing a great obstacle for Iran in the international arena. The hardline leadership of the country shows little signs that its position concerning the dossier will change in the near future, and a hypothetical invasion by foreign troops would be the worst case scenario concerning gas infrastructure. Consequently, Iran is not officially considered by the EU as a candidate for filling up Nabucco. To sum up, both Iran and Iraq are places where investments in the energy sector, and gas in particular, seem currently difficult; but the geographical positions of those two countries, which share a border with Turkey, and their very large resources, place them in a “hardly avoidable category” as future suppliers of gas to the EU. There is no easy solution to this dilemma, but if European needs increase, and if a certain diversification is to happen, these two countries are likely to become necessary partners in a medium- to long-term perspective. Today, the only country in the region presenting stable political characteristics with low oil production and a small population is Qatar. Qatari production and exports keep increasing, and the OME predicts a marketed production as high as 200 bcm by 2020 and 300 bcm by 2030. Qatar uses LNG as its export vehicle; this means that potential supplies to Europe would be in relatively high competition with Asian and North American demands due to the flexibility of LNG exports. Nevertheless, Europe is likely to remain the major importing market for natural gas in the world, which should attract the attention of producing countries. Moreover, Europe imports very limited amounts of Qatari gas for the time being (7.9 bcm in 2009, according to BP), which goes to Spain, Geopolitical Issues of Europe’s Future Gas Supply Belgium, the UK and Italy. Qatar represents a very important opportunity for diversification of European gas supplies, and it presents very limited geopolitical risks. Even if competition is fierce, in absolute figures an important quantity of gas could be allocated to Europe and specifically to countries which still lack diversification possibilities (such as Poland, which is expected to start importing from Qatar very soon, and Greece). Qatar is, therefore, considered a strategic future supplier of gas to the EU. 4.the Increase of LnG trade Currently, LNG represents about 30 percent of total gas trade, but the proportion is likely to increase as LNG transportation costs decrease. The higher flexibility of gas shipments would have several impacts. It would, for example, allow the emergence of a more important spot market for gas. At present, only a few places play this role (mainly the Henry Hub in the US, the National Balancing Point in the UK, and Zeebrugge on continental Europe), but if the roles of the European hubs increase, they would acquire acceptance as price discovery tools. A gas spot market would probably augment the volatility of prices and could both reduce security of supply and play the role of an emergency tool. Gas prices are for the moment pegged to oil prices because gas contracts are bilateral and infrastructure is fixed, which makes gas an illiquid asset. However, Jonathan Stern (2007) has argued that the link between oil and gas is becoming less relevant because switching capacity in power generation facilities is increasingly being abandoned. 23 Therefore, using oil to price gas is going to be more a matter of strategy and politics rather than a physical necessity. Facilitated competition for gas between various actors may be brought about by an increase of LNG trade involving Europe, North America and East Asia. For example, Qatar will serve both the Atlantic basin and the Pacific basin, while Trinidad and Tobago will play the arbitrage between North America and Europe. Algeria and African exporters, primarily Nigeria, could also divert some of their exports to the US.
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Gulf Research Center Foundation
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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 and 74: SESSION IV: LNG and Gas Supplies to
Page 75 and 76: had a drastically different vision
Page 77 and 78: now, China has preferred the LNG op
Page 79 and 80: considered an issue. Though the bor
Page 81 and 82: 70bcm/yr by 2020. Even if only a fr
Page 83: that Russia and China have started
Page 87 and 88: of unconventional gas, has already
Page 89 and 90: Geopolitical Issues of Europe’s F
Page 91 and 92: • • • • • • • • •
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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