Earlier this April, major gas producers met for a brain storming session in Doha despite the displeasure of the Americans. That the Bush administration should kick up a fuss is of course no surprise when you consider the situation. Natural gas is a cleaner and more efficient energy source than oil its by-products. Further, the demand for natural gas has been increasing at a faster rate than the demand for oil and by 2025 half the consumption of hydrocarbon fuels will be in the form of gas rather than oil. In essence, the Americans fear the formation of an official gas body, similar to OPEC, leaving them once more out in the cold.
The Gas Exporting Countries Forum doesn't have a fixed membership structure; however Algeria, Bolivia, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Qatar, Russia, Turkmenistan, Trinidad & Tobago, the UAE and Venezuela could be identified as current members. Norway has observer status.
But it was the participation of Russia at the Doha meeting that constituted possibly the most significant aspect. The Russians currently have the largest reserves of natural non-associated gas in the world and are supplying Western Europe with 30 per cent of its gas requirements. In addition, Russia has been developing its network of gas pipelines which will reach Turkey and Greece in addition to Germany, France, Italy, Austria, Spain, Ukraine and Poland. Just before the last German elections in 2005, outgoing German Chancellor Gerhard Schröeder signed an agreement with Russia for a major underwater gas pipeline linking the two countries while bypassing Ukraine and Poland.
Over the past two years – and certainly the last few months – Russia has been formulating an energy policy that serves its political ambitions. It can no longer be regarded as backward in oil and gas technology and its financial resources are now significant at over 220 billion USD in free reserves. Also consider that Gasprom, the Russian state owned oil and gas giant, is now one of the largest five companies in the world.
One of Russia’s strategic thrusts is its intent to participate with major western oil companies in supplying gas and oil pipelines to Japan (gas) and China (gas and oil). Considering that Russia is the second largest oil exporter in the world (after Saudi Arabia) and the largest gas exporter, if it were to participate in the formation of a gas exporters’ organisation with Algeria, Qatar and Iran then, sooner or later, it would have to join OPEC too. If Saudi Arabia were to join as well then the energy world would change considerably. After a century of western control of oil supplies via the major oil companies, constituting over 90 per cent of exported energy supplies, the new organisation would radicalise the industry over the next 25 years at least and this was previously considered to a period with no major expected changes in hydrocarbon consumption patterns.
A major development to be anticipated will be a growing role for Iran, who has so far has not developed its gas resources, estimated to be second in importance to the reserves of Russia. Iran has been aware of its potential since the mid-seventies, and built a pipeline for delivery of Iranian gas to the southern republics of the Soviet Union. But in 1979, a fiercely anti-communist Ayatollah Khomeini stopped the deliveries to the Soviet republics. The Iran-Iraq war of 1980-1988 stopped Iranian development work of its gas and oil fields as well as refining capacity and equipment. Today Iran imports gas and oil products to the tune of two billion USD a year. Interest in Iranian gas reserves is very strong with Russia and China leading its development. Within 15 years Iran could outstrip even Qatar.
By contrast, Qatar which assessed its gas potential properly in 1978 has been building Liquid Natural Gas plants and exporting its gas production by special tankers essentially to the Far East – and in particular Japan and South Korea. In five years time, the emirate will be exporting 80 million tons per year of LNG and will thus be the leading LNG exporter in the world. Also, Qatar has achieved the highest per capita income of any Gulf country and is cultivating lavish projects in information and education.
The process of liquefying gas under great pressure and shipping it in tankers, which maintain sub-zero pressurized tanks by especially designed tankers started in the mid-1960s in Algeria. At that time, LNG tankers were built only in France and Sweden. The process was very expensive and gas prices were much lower than corresponding oil prices on a heat generation scale that countries like Algeria sought to construct undersea pipelines for deliveries to Europe.
It is well known that the best and most efficient way for gas deliveries is through pipelines. This is why the Americans, who enjoyed the largest reserves of gas until the early 1960s had developed the most extensive grid of gas pipeline networks for delivery of gas from gas producing states to major centres of consumption. Interestingly, the United States started importing LNG from Algeria in the very same decade as production of gas was not meeting demand.
There is also competition coming from western countries. In the complex picture of actual gas producers and exporters which account for most of international deliveries lurk the gas reserves of Groningen, an offshore field in Holland, with even more significant offshore reserves in Norway. These two highly developed countries with small populations and high per capita income are nurturing their gas supplies for larger sales in the not too distant future when prices could be much higher. Today, Norway alone exports what Qatar hopes to in five years time. At present, Dutch and Norwegian offshore deliveries to European countries are covering 19 per cent of European requirements as opposed to the 30 per cent to 32 per cent provided by Russia to the continent.
What does the future hold for gas producers and exporters? Certainly it would seem that demand for their resources can only grow faster than total energy demand for reasons mentioned. And as long as western competition depends on Dutch and Norwegian policies, it would seem that gas prices could go much higher before deliveries from these two sources are primed to provide price competition.
BIGGEST GAS EXPORTERS TODAY
IN RANKING
RUSSIA
CANADA-ESSENTIALLY TO USA
NORWAY
ALGERIA
NETHERLANDS
QATAR
INDONESIA
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