INTELBRIEF
May 7, 2014
TSG IntelBrief: Pipelines as Front Lines: Geopolitical Positioning & Natural Gas
• The coming decade will witness a natural gas-based geopolitical restructuring on the scale of the 20th century’s oil-based restructuring
• Within 20 years, it is estimated that gas, coal, and oil will each account for just under 30% of global energy consumption, marking the end of millennia of single-fuel economies; this 30-30-30 parity in energy resources presents regions with something never experienced: choice
• Countries are now more capable of exploiting new gas fields in the eastern Mediterranean, off the coast of Mozambique, and shale gas from the US—all have the potential to alter long-standing geopolitical power dynamics and alliances, with OPEC likely to experience relatively diminished clout
• While the gas reserves of any single country won’t rival global leaders like Russia or Qatar, the cumulative impact of new regional producers and suppliers will be meaningful
• Liquid Natural Gas terminals, while costly to build, will allow some countries to bypass pipeline diplomacy altogether.
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Since the discovery of fire, human societies have been built around single-fuel dominant economic systems: wood, coal, oil, etc. Rapid advances in the production of natural gas, along with greater efficiency as it relates to petroleum usage in particular, mean that within 20 years there won’t be a single fuel that runs the global economy. Rather, oil, coal, and natural gas will each account for just under 30% of global use. This is significant for a variety of reasons, none more so than the geopolitical restructuring that will accompany this new reality. Much of the current and somewhat fraying geopolitical alliances and dynamics have their roots in the Oil Age that began as World War I ended. As countries and multinational corporations position themselves both in terms of production and distribution, pipelines will be the new front lines, making borders more meaningful than lines on a map.
The current crisis in Ukraine stems in part from Russia's strategy of leveraging its natural gas supply and distribution to maintain control and influence over former Soviet republics and satellites. It represents a case wherein a country seeks to use natural gas to hold onto its historical zones of influence. However, the greater issue is how Russia’s moves relate to a global economy and a political system that uses natural gas to, in part, shed its history.
A brief look at the numbers involved provides a sense of the change:
Global consumption of natural gas is projected to increase from 113.0 trillion cubic feet in 2010 to 185.0 trillion cubic feet in 2040—a 63% increase. By comparison, oil consumption is expected to increase by 35% in the same period.
The US will become a net energy exporter by 2018 (or earlier, if crude oil export restrictions are lifted), stemming from increased efficiency of shale gas production.
Israel is expected to become a net energy exporter once production starts in its Leviathan gas field: Between Leviathan and its operational Tamar field, Israel has an estimated 100 trillion cubic feet (Tfc) of natural gas reserves.
Mozambique’s 2012 discovery of natural gas in its offshore Rovuma Basin exceeds 100 Tfc, instantly making the country a significant export partner for growing Asian economies.
Proposed pipelines from the Eastern Mediterranean (Israel, Cyprus, Lebanon, and Turkey), and from Central Asia (Turkmenistan, Kazakhstan, and Uzbekistan) could alleviate European concerns about dependency on Russian gas, though all proposals are costly in terms of investment, political will, and time.
Taken individually, the reserves of countries such as Israel or Mozambique don’t come close to Russia’s 1,500 Tfc of known reserves, Iran’s 1000 Tfc reserves, or Qatar’s 900 Tfc reserves. But the significant point is that there will soon be enough small-to-mid-sized exporters to present countries across the globe with something they’ve not experienced: energy options. Natural gas isn’t a cartel commodity in the traditional sense (though pipelines can be), and the widely disparate nations that possess significant reserves either for domestic or export use (from Nigeria to Norway, the UAE to the US, and Iran to Indonesia) will act as disruptors to the Oil Age power dynamics. This is already happening to a degree with the shifting dynamics of the US-Saudi Arabia relationship, an alliance built on the need to maintain energy stability.
More so than production, it will be the distribution of natural gas that will break old alliances and form new ones. Russia’s leverage stems not only from its significant reserves but also from its immense system of pipelines. These conduits are an earth-bound reality in an increasingly cloud-based world, and the only way to change the power dynamic is to build alternative distribution systems. The investments required will be, on-scale, similar to those that went towards reconstruction efforts after World War II, with the same goal of stabilizing the continent and minimizing the influence of bad actors. Negotiations for new projects will be similar to the dramatic negotiations of the Cold War in terms of meaningful global and regional impact, again with the same goal of reducing conflict. Regions that can work together will thrive, while areas in conflict, such as Russia and Ukraine, will not.
For countries with suitable ports, an expensive but effective alternative to the hazards of pipeline diplomacy is Liquid Natural Gas (LNG) terminals. LNG facilities can revolutionize the geopolitics of countries such as Latvia, Estonia, and Lithuania, whose geopolitical choices have been shaped in large measure by Russian gas supplies. An increase in LNG export capacity in the US will help meet some supply needs in Asia as well as Europe, and provide those regions with unprecedented geopolitical choices.
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Forecast:
• The Oil Age took decades to integrate itself into global geopolitics and alliances. The shift to a “choice age” will occur somewhat faster due to globalization and technology, with noticeable change already occurring across regions.
• The enormous resources needed to develop requisite infrastructures to take advantage of the 30-30-30 parity in fuels, and continued development of renewable energy, will require the same—if not greater—levels of negotiation and coordination than our previous and current efforts at conflict resolution.
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