Geopolitics of Natural Gas - Stanford...
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Geopolitics of Natural Gas
A joint study:
Energy Forum of the Baker InstituteRice University
Program on Energy and Sustainable DevelopmentStanford University
Amy M. Jaffe and David G. VictorStudy Conference
May 27, 2004Houston
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Supply and Demand
White: where the lights are on, satellite imageryBlue Red : Gas resources, with increasing size (USGS)
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The Baker/Stanford Approach:
• Historical Case Studies– Key “first of a kind” projects– Compare built projects with alternatives
• Model of Future Gas Market– “World Gas Trade Model” (WGTM”)– All major resources and supply curves– All major demand centers– All major gas transmission technologies
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Seven Historical Case StudiesBuilt Projects Author
1. Indonesia LNG to Japan Lewis & von der Mehden
2. Algeria to Italy Hayes
6. Trinidad LNG to U.S. Shepherd & Ball
3. Russia to Poland and Germany Victor &Victor
4. Turkmenistan (to Iran, to Russia, to Pakistan & India)
Olcott
5. Qatar to Japan Hashimoto
7. Southern Cone (Bolivia to Argentina; Argentina to Chile; Bolivia to Brazil)
Mares
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A Vision for 20302002
Production Share
Russia, 22.0%
Turkmenistan, 1.3%
Kazakhastan, 1.1%
Saudi Arabia, 2.1%
Qatar, 1.4%
Iraq, 0.1%
Iran, 2.5%
Canada, 6.4%
US (L48 and Alaska), 18.8%
Mexico, 1.4%
Australasia, 7.3%
North Sea Region, 9.5%
Africa (majors), 4.6%
South America (majors), 4.2%
ROW, 17.2%
2030Production Share
Russia, 23.2%
Turkmenistan, 2.2%
Kazakhastan, 1.4%
Saudi Arabia, 4.9%
Qatar, 2.3%
Iraq, 2.1%
Iran, 7.6%
Canada, 2.0%
US (L48 and Alaska), 9.4%
Mexico, 0.7%
Australasia, 8.1%
North Sea Region, 6.2%
Africa (majors), 6.4%
South America (majors), 8.5%
ROW, 15.2%
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Geopolitical Implications:four points
1. New Market Structures Regional to Global
2. Changing Roles for GovernmentsFrom Builder to Facilitator
3. Supply SecurityA Viable Cartel?
4. Challenges to Gas FutureFour Possible Pitfalls
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1. New Market StructuresGlobal Market Supply by Source
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50
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2002
2004
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2014
2016
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2020
2022
2024
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2030
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World Gas Pipeline Supply World LNG SupplyTcf
LNG Share of World Supply by Region
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2002 2006 2010 2015 2020 2025 2030 2035 2040
Atlantic Basin Middle East Pacific Basin
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More countries import more gas Net import share in own demand
-20%
0%
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40%
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2002 2006 2010 2015 2020 2025 2030 2035 2040
US
Mexico
EU
India
China
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2. Changing Role for the State
• “Old World”• State-owned enterprises• Tightly regulated, monopoly markets• Oil-indexed gas prices
• “New World”• Private operators and financing• Contestable, multiple markets• Gas-on-gas competition
The New World: Faster or Slower Shift to Gas?
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Old World: State “creates” demand
_̂_̂
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Morocco
AlgeriaLibya
Tunisia
Spain
Italy
France
In Salah
Mediterranean Sea
Amassak
HuelvaSkikda
Arzew
Panigaglia
Po Valley
Rome
Hassi R' Mel
Rabat
MadridBarcelona
TunisOran
AlgiersAlmeria Trans-Med
Maghreb-Europe
Cartagena
Bilbao
Portugal
8°W
8°W
4°W
4°W
0°E
0°E
4°E
4°E
8°E
8°E
12°E
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26°N 26°N
30°N 30°N
34°N 34°N
38°N 38°N
42°N 42°N
46°N 46°N
Gas PipelinesExistingProposed
LNG Facilities_̂ Import
_̂ ExportGas_Fields]
0 300 600 900150 Kilometers
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Long Term Contracts
• Old World– State-to-state agreements– Low enforceability when inconvenient
• New World– Private agreements– High enforceability, but shorter terms
Are Long term contracts essential?
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3. Security of Supply and Cartels
• To date, few political interruptions of supply– Ukraine (middle 1990s) and Belarus (2004)– Algeria (early 1980s)– Indonesia (~2002)– Argentina (2004)
• Is a Gas Cartel Feasible?– Gas Exporting Countries Forum (GECF)– Large competitive fringe– Policy responses
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Prospects for a Gas Cartel• Reserves and Exports highly concentrated
– Exports• Russia has 28%• Top 7 have 79% of exports
• But…– Not all are likely Cartel members (e.g., Canada, Norway,
Netherlands—30% of exports) – Export concentration reflects underdevelopment of many
major deposits• Qatar (2.6% of world exports) is only significant Middle East player
– High supply elasticity many “competitive fringe” suppliers
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In the Long Run…• Possible emergence of LNG “swing
producers”• Rice World Gas Trade Model estimates:
– Russian dominance in Europe and Asia• pipeline gas is cheaper than LNG• Arbitrageur between Europe and East Asia
– Iran; Saudi Arabia• Constrains possible Russian market power?
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4. Challenges to Gas Future
a) Investor Confidence• $3.1 trillion capital needed for next 30 years• Mainly upstream (E&D; liquefaction)• Inhospitable investment environments
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Top 10 ExportersExports Production Reserves
(bcm) (bcm) Rank (tcm) Rank
1 Russia 128.22 554.9 1 47.57 12 Canada 108.8 183.5 3 1.7 193 Norway 61.19 65.4 7 2.19 134 Algeria 57.76 80.4 5 4.52 75 Netherlands 42.7 59.9 9 1.76 186 Indonesia 35.83 70.6 6 2.62 117 Malaysia 20.52 50.3 12 2.12 148 Qatar 18.59 29.3 19 14.40 39 United States 15.12 547.7 2 5.19 6
10 United Kingdom 14.16 103.1 4 0.70 30
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More Challenges
b) “Resource Curse”• Arun, Algeria, Russia: all affected• Yet projects went forward• New world: higher scrutiny and new schemes
c) Siting and terrorism• Regasification facilities
d) Electricity• 2/3 of expected incremental demand• Will markets be restructured?
– Caution of Brazil• Will coal fight back? Large Scale Renewables? Nuclear?
– Coal in Poland
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Final Question:A Peace Dividend from Pipelines?
• Are pipeline infrastructures analogous to European Coal and Steel Community and the Treaty of Rome (1957)
• Results– Mixed evidence– Causal arrows
• peace and integration allow gas• Once built, gas reinforces integration
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Southern Cone: Gas InterconnectionsCurrent and FutureBefore 1990
BrazilPeru
Bolivia
Paraguay
UruguayChile
Venezuela
Argentina
Gas pipelineBolivia-Argentina
1972
BrazilPeru
Bolivia
Paraguay
UruguayChile
Venezuela
Argentina
Gas pipelinedel Pacífico
1999
Atacama1999
Gas pipelinePaisandú
1998
Gas pipelineMercosur
Gas pipelineBolivia-Chile
Gas pipelineSanta Cruz-Sao Paulo
1999
Norandino1999
GasAndes1997
Gas pipelineUruguaiana
2000
Gas pipelineBolivia-Paraguay-Brazil
Bermejo-Rámos1988
Gas pipelineMethanex
1996de la Vega, 2000
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Supply projections2030
Russia24%
Turkmenistan2%
Kazakhastan1%
Saudi Arabia5%
Qatar2%
Iraq2%
Iran8%
Canada2%
US (L48 and Alaska)
9%
Mexico1%
Australasia8%
North Sea Region
6%
Africa (majors)
6%
South America (majors)
8%
ROW16%
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Growth in LNG trade
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2002 2006 2010 2015 2020 2025 2030 2035 2040
Atlantic Basin Middle East Pacific Basin