Marketplace Middle East - Blog
4/30/09
Pipeline Politics

There is a nasty tug of war going on. It does not involve two teams pulling at ropes, but two consortiums wrestling to see their pipeline prevail. This big time struggle will certainly have implications for the Middle East, but it is too early to tell just how.

The Summit on Natural Gas for Europe and Security and Partnership recently brought together 29 leaders and ministers to Sofia, Bulgaria. They signed a declaration to support the “rapid development of international gas infrastructure … to guarantee diversification of gas supplies.” Nice words indeed after Europeans saw their gas supplies interrupted every year for the past three years, but it brought us no closer on how to get there.

In case you missed the story on our program, Turkey is positioning itself as a key transit point for the Nabucco pipeline, a 3,300 kilometer project that can take gas from the Caspian Sea region to Europe. Backed by the European Union and the United States, it would cost nearly €8 billion to pull off.

In the other corner (considering this a heavyweight boxing match) is the Russian backed South Stream project, weighing in at €10 billion. Italy’s Eni is involved and would take gas from Russia, under the Black Sea, to Bulgaria and beyond. It also helps in terms of political clout that Europe’s largest economy Germany has long established ties to Moscow as well.

Turkey’s President Abdullah Gul said the “necessary political will” is there in his country to implement the project, but it does not seem to be anywhere else. As veteran oil and gas analyst Mehdi Varzi said, I am just curious why they (Europe and the U.S.) are not putting their weight behind it.

We are expecting a decision on whether to proceed with Nabucco by June, but in the meantime there is a lot of scrambling and lobbying going on with those who control the gas -- Azerbaijan, Turkmenistan and Kazakhstan. While this real life, high stakes drama plays out, Middle East players are beginning to show their cards on the other precious fossil fuel -- natural gas.

Qatar is way ahead of anyone else here,” says Varzi, and that is a fair bet considering the amount of money the nation is putting into the Ras Laffan gas operation.

"Ras Laffan is the future of Qatar, simply because of the reserves. This is the gas city of the world and the gas city of Qatar," says Faisal Al Suwaidi, CEO of Qatargas.

The tiny state sits atop the largest single gas field in the world and ranks number three behind Russia and Iran in reserves. The North Field is feeding natural gas to the United Arab Emirates and Oman via the Dolphin Energy project, and loading up giant LNG tankers for markets such as Britain, with Poland knocking at the door as well.

Iran this past week sent signals that it is gearing up to develop the same field on its side of the territorial divide, South Pars. Iran’s state export gas company said China’s Sinopec may join Repsol of Spain and Royal Dutch Shell to develop the Persian LNG project. The Iranians say a decision is expected by mid-May.

Varzi, originally from Iran, says the country’s “energy development is very confusing and it arises from what I call political bickering in the country.”

It is obvious that the weight of sanctions is forcing companies to tread a fine line -- they want to be involved in future developments, but they want to see political daylight before rushing ahead. Industry analysts say we could witness the Obama effect, with the olive branch extended to Tehran, but it will take the June elections to pass before we begin to see clarity on that front.

The so-called peace pipeline is also in the mix. It could deliver gas from Iran through Pakistan to India. We have heard about it for years, but again resistance from Washington has stalled activity.

That is the backdrop for the region’s number one and two holders of reserves -- but with Saudi Arabia, UAE and Algeria all in the top ten, future prospects get interesting.

The current price scenario is complicating matters. While oil is trading at around $50 in this global slump, natural gas is at the equivalent of $20-$30 a barrel. Unlike oil, the bulk of all shipments are passing through pipelines these days, which means you need both upstream partners and downstream customers to make this equation work.

Because developments (minus Qatar) have been slow off the mark, the Middle East is not awash with available natural gas. All the buildings and desalination plants require fuel to run them – gas is the cleanest burning and cheapest alternative available.

So the headline number of the region sitting on 45 percent of the world’s gas reserves looks promising; getting it to market remains the challenge.

ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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