Natural Gas and Geopolitics 23 rd World Gas Conference 9 June 2006 David G. Victor Program on Energy & Sustainable Development Stanford University http://pesd.stanford.edu/
Overview of the Study Collaboration between the James A. Baker III Institute for Public Policy, Rice University and Program on Energy and Sustainable Development, Stanford University Research partners conducted seven historical case studies (see supplemental slides) New book from Cambridge University Press Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 2
Gas Resources and Potential Demand White: where the lights are on, satellite imagery Blue Red : Gas resources, with increasing size (USGS) Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 3
International Gas Trade Projects: Lessons from History The Belarus Connector Bluestream Turkmenistan KKK Export Routes TransMed Atlantic LNG Qatargas LNG Arun LNG GasBol YABOG GasAndes 0 1,500 3,000 6,000 Kilometers Existing Proposed Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 4
Overview of this Presentation 1. Changing roles for governments Winning suppliers are rich in gas and governance 2. Supply security and gas cartels Few interruptions Gas cartel unlikely 3. Risks to the Gas Vision Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 5
1. Changing Roles for Governments Old World State-owned enterprises Tightly regulated monopolies Oil-indexed gas prices New World Private operators, financing, and contracting Contestable, multiple markets Gas-on-gas competition The Real Hybrid World National champion energy companies Managed markets Mixed pricing regimes Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 6
From States to Markets Control over key gas enterprises Private Hybrid Yabog (Bolivia Argentina) 1972 Arun (Indonesia LNG Japan) 1978 Transmed (Algeria Italy) 1983 Qatargas LNG Japan 1996 Belarus Connector 1996 GasAndes 1997 GasBol 1998 Turkmenistan Iran 1997 Trinidad LNG 1999 Bluestream (Russia Turkey) 2002 State 1970 2000 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 7
Confidence for Investors: The Success of Trinidad and Failure of Venezuela 62 W 61 W 60 W Caribbean Sea Tobago Atlantic Ocean 11 N Hibiscus 11 N Gulf of Paria Trinidad Dolphin Point Fortin [ [ 10 N LNG Facilities 10 N Columbus Channel South Seg Gas Pipelines Loran Existing Proposed Venezuela Gas_Fields ] 0 25 50 100 Kilometers Teak 62 W 61 W 60 W Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 8
Projected Gas Trade Between Regions 2,000 1,500 BCM 1,000 500 0-500 Middle East Russia N. America -1,000 Europe -1,500-2,000 2006 2010 2014 2018 2022 2026 2030 2034 2038 Central, South America North America Europe Russia Other FSU Middle East North Africa Other Africa South Asia China Asia Pacific Importers Asia Pacific Exporters Source: Baker Institute World Gas Trade Model (BIWGTM) Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 9
Projected US and European LNG Imports 140 120 100 BCM 80 60 U.S. Europe 40 20 Source: BIWGTM, Base Case Results 0 2004 2012 2020 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 10
2. Supply Security Rising attention to gas security How many interruptions? And by whom? Could a gas cartel form? Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 11
Gas Trade Interruptions Initiating Party Examples from 7 Case Studies Supplier 1. Algeria (1981 to 1983). Gas Battle with Italy, the United States and others. 2. Arun (2001). Civil unrest in Aceh disrupts shipments. 3. GasAndes (2004). Argentine government curtails shipments to Chile. Transit Country User 1. Russia (1997-1998). Gazprom refuses to transport Turkmen gas to Europe. 2. Ukraine (mid-1990s) disputes with Gazprom over volumes and payments for gas shipments. 3. Gazprom (2004) cuts supplies to Belarus (and to Europe via Belarus Connector) in pricing dispute with Belarus. 4. Gazprom (2005-2006) cuts supplies to Ukraine during a pricing dispute but tries to keep supplies flowing to Europe through cross-ukraine pipelines. 1. U.S. Govt. (1981) disallows Algerian shipments in retaliation to price demands. 2. YABOG (1987). Argentina refuses to take or pay for full Bolivian shipments. 3. GasBol (2001). Brazil refuses full volumes contracted from Bolivia 4. Qatargas (1998). Japan demands price reductions. 5. Bluestream (2002). Turkey demands price and volume reductions for Russian gas. Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 12
A Gas Cartel Is Unlikely Distribution of Proved Gas Reserves Implies Concentration Iran 15% Qatar 7% Saudi Arabia 4% Russia 32% UAE 4% United States 3% US EIA; Proved gas reserves (2002) Others 35% Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 13
3. Risks to the Gas Vision Will supplies materialize? Incredible governments, politicized resources Will demand materialize? Competition from coal and nuclear for electric power Emerging gas markets in China and India Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 14
Russian Natural Gas Production: Historical & Projections 700 600 Total Production Deficit 500 BCM 400 Medvezh'ye Yamburgskoye Zapalyarnoe 300 200 100 Urengoyskoye 0 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 Source: IEA 2002, Stern, J.P. 2005 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 15
Credibility: The Commitment Problem 1. State supplies credibility Old World : state provides capital, enforcer, guarantor (e.g. Transmed) New World : credibility through transparency, reputation Real World: one-off deals, erratic credibility 2. Realign incentives Partner with locals political leverage AND exposure 3. Engage international institutions? Provide capital and leverage broader relationship (e.g. GasBol) External accounts Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 16
Will Demand Materialize? 700 Projected European Gas Consumption 600 500 Electric Power BCM 400 300 200 Residential / Commercial 100 Industry 0 2002 2010 2020 2030 Source: IEA-WEO 2004 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 17
Gas Growth in Major Developing Countries China India 250 250 200 Other 200 BCM 150 100 50 0 2000 2020 Residential Chemical/ Fertilizer Electric Power 150 100 50 0 2000 2025 Other Fertilizer Electric Power Sources: China: IEA; India: Hydrocarbon Vision 2025 Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 18
Conclusions: Governance drives investment Real world is a hybrid market A fungible, global market delivers security? Where governments aren t credible, gas is left in the ground Gas-to-power highly uncertain Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 19
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Supplemental Slides Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 21
Seven Historical Case Studies 2. Algeria to Italy Built Projects 1. Indonesia LNG to Japan Author Lewis & von der Mehden Hayes 3. Russia to Poland and Germany Victor & Victor 4. Turkmenistan (to Iran, to Russia, to Pakistan & India) 5. Qatar to Japan Olcott Hashimoto 6. Trinidad LNG to U.S. 7. Southern Cone (Bolivia to Argentina; Argentina to Chile; Bolivia to Brazil) Shepherd & Ball Mares Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 22
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 The Importance of Governance: Why many gas resources don t get monetized Russia Iran Saudi Arabia United States UAE Turkmenistan Norway Iraq Algeria Venezuela Indonesia Australia Qatar Nigeria Brazil Reserves and Resources* (Tcm) % world 83.0 33.6 32.4 30.0 15.5 9.4 8.9 8.7 8.1 8.1 8.1 7.9 6.4 6.3 5.9 24.0% 9.7% 9.4% 8.7% 4.5% 2.7% 2.6% 2.5% 2.3% 2.3% 2.3% 2.3% 1.8% 1.8% 1.7% General Investment Risk Index 5.5 5.8 7.2 8.7 7.5 NA 9.2 NA 4.7 4.3 4.3 8.8 7.5 2.8 5.5 Gas Production (Bcm)** 578.6 79.0 61.0 549.9 44.4 55.1 73.4 2.4 82.8 29.4 72.6 33.2 30.8 19.2 10.1 Total Exports (Bcm)** 131.8 3.5 -- 18.5 7.1 4.9 68.4 -- 61.1 -- 39.4 10.5 19.2 11.8 -- Export Rank 1 23 NA 9 17 20 3 NA 4 NA 6 13 8 12 NA *Reserves and resources data from USGS (2000); **Production and exports from BP (2004). Program on Energy and Sustainable Development - http://pesd.stanford.edu/ 23