1 Geopolitical and Security aspects of Asian Gas Supply.

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Geopolitical and Security aspects of Asian Gas Supply

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GEOPOLITICAL ASPECTS OF GAS SUPPLY

Liam Fox the shadow defense Secretary of United Kingdom presented a compelling argument in Sunday Times in July 2007

He Said

“Since the close of the cold war we have been growing used to threats such as terrorism where enemy has no state or

territory. But soon we will have to get used to strategic challenge such as energy

security where fossil fuels will be used as weapons to achieve political ends.”

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WHAT IS ENERGY SECURITY?

Energy Security the heart of the biggest geopolitical question to day, can be shown as

“Energy Security”

“Economic Security”

“National Security”

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GEOPOLITICS OF GAS SUPPLY

Sense of Competition leads to Geopolitical Tension among:

A. Consuming Countries

• Seeking to secure the largest share of available gas resources for their countries

• Example : China and India competing Japan, South Korea already absorbing the largest LNG share in Asia

B. Producing Countries

• Economic gain and to acquire political power possibly for using in a “discriminatory” way to achieve “Other ends”

• Gazprom of Russia, Venezuela

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ENERGY DEPENDENCY LEADS TO GAS TRADE ACROSS COUNTRIES

- “Dependency” due to unequal distribution – consuming countries do not produce enough

- Producing countries have inadequate domestic market to absorb their own internal production

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ENERGY DEPENDENCY LEADS TO GAS TRADE ACROSS COUNTRIES

- The reserve / production of top 25 countries show that some 20 countries owning 80% of the gas reserve has excess capacity to export. These are

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IMPORT

World wide import of gas was 825 bcm in 2006- will rise to 1250 bcm within the next 15 years

(Order of magnitude – India’s total consumption about 30 bcm)

Total gas demand of the world: 3200 bcm/yr in 2006

- 25% imported, 80% by pipeline, 20% by LNG, largest pipeline transit is from Russia to Europe and Canada to USA

- LNG import statistics shows Asia Pacific to import the largest volume

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IMPORT

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HOW THIS TRADE IMPACTS ON GEOPOLITICS

Emergence of powerful National Oil Companies (NOC) for both the “Selling” and the “Buying Countries”

Selling Countries• Note that NOC’s and not the IOC’s own the oil and

Gas Reserves• The largest reserve is held by Gazporm of Russia,

Saudi Aramco and National Iranian Oil Company – see the insignificant holding by either Exxon Mobil or Shell.

• I can see Saudi Aramco, Gazporm and Iranian oil companies in business 20 years from now – I am not so sure about some of the IOC’s with little or no significant reserve base

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HOW THIS TRADE IMPACTS ON GEOPOLITICS

Gazprom (Russia)

National Iranian Oil CompanyQatar PetroleumSaudi Aramco

Abu Dhabi National Oil Company Petroleos de Venezulea Sonatrach (Algeria)

Pertamina (Indonesia)

Nigerian National Petroleum Corporation

Royal Dutch ShellRosneft (Russia)

Surgutneftegaz(Russia)Kuwait Petroleum CorporationNational Oil Corporation (Libya)BP

Figure 2: World gas reserve by company

Bn boc

0 25 50 75 100 125 150 175 200

Petroleum Mexicanos

PetroChina

Iraq National Oil CompanySaudi Aramco

Kuwait Petroleum CorporationNational Iranian Oil CompanyPetroleos de VenezuleaAbu Dhabi National Oil CompanyPetroleos MexicanosNational Oil Corporation (Libya)Nigerian National Petroleum CorporationLukoil (Russia)Yukos (Russia)ExxonMobilPetroChinaRoyal Dutch ShellSonatrach (Algeria)Petrobras (Brazil)Petramina (Indonesia)BPSidanco (Russia)Gazprom (Russia)

Figure 1: World Oil reserves by company

Bn boc

0 50 100 150 200 250 300

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HOW THIS TRADE IMPACTS ON GEOPOLITICS

Concentration of Power

Through the ownership of “Reserves” the NOC’s and their Governments have gained enormous power

- Russia (through Gazporm )- Venezuela (through PDVSA)- Iran (through NIOC)- Saudi Arabia (through Saudi Aramco)

There are many other examples

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GEOPOLITICAL IMPLICATIONS - EXAMPLES

Gazporm – two recent examples having impact on Asia

1) Kovykta Field

60 bcm of Gas was to flow from West Siberian field of Kovykta (owned by TNK-BP) to China and South Korea.

Gazporm regained ownership through (which may appear) less than Transparent means. Future is uncertain

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GEOPOLITICAL IMPLICATIONS

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GEOPOLITICAL IMPLICATIONS

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GEOPOLITICAL IMPLICATIONS

Gazporm – two recent examples having impact on Asia

2) Sakhalin 213 bcm, $20 bn LNG project for supply to China, Japan and USA – taken over by Gazporm

• An interesting comment appeared in Feb, 2007 in Financial Times of UK which said:-

Kremlin with its heavy handed stand “has done more to advance the cause of alternative

energy in the past year or so than any green activist could manage in a lifetime”

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GEOPOLITICAL IMPLICATIONS

3) Outside Asia

• Hugo Chavez took over the Orinaco basin reserves in Venezuela and handed over the fields to PDVSA owned by the Govt. Conoco Philips wrote off $4.5 billion

• Arctic Circle with roughly 400 tcf of gas spreading 460,000 km is now subject to geopolitical tension among Russia, Canada, US, Denmark and Norway

This will also have an impact on Asian gas supply situation

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GEOPOLITICAL IMPLICATIONS

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GEOPOLITICAL IMPLICATIONS

• Among the buying countries, the danger is that “commercial competition” is giving rise to “Geostrategic Rivalry”

• This pursuit of oil and Gas largely by china may have added a new dimension to an already tense geopolitical situation in the world.

• Gidean Rachman wrote in FT recentrly

“China’s controversial foray into Africa is its first real effort to build power and influence outside Asia. The search for Oil and Gas is fundamental to this policy – in particular China’s

controversial relationship with Government of Sudan.”

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• Such actions may undermine the intervention of UN and some of these countries may get dragged into internal politics of the resource owning countries

• Also, to neutralize competition some consolidation of NOC’s is in progress i.e. joint bidding by CNPC and ONGC in Colombia worth $800 millions

• This is likely to result in some retaliation by other IOC’s and NOC’s. This may weaken the global energy trading community’s effort for energy security.

GEOPOLITICAL IMPLICATIONS

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SECURITY OF SUPPLY

• An optimum approach to solving energy security aspects of a country could be a balance between– Domestic production within the country– Pipeline import by Transnational route– LNG import – Unconventional production of natural gas i.e. CBM,

Hydrates etc

• For India, gas supply security may be achieved by balancing

these supply sources.

• Some example are

Chinese Model– Chinese model may be an example to take note of. China’s

requirement of 110 bcm / year (from current level of 50 bcm) is planned to be provided by

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China– 10 LNG Terminals– Linking the LNG terminals by East – West pipelines(12 bcm) to domestic

production (4000 km)– Imported gas by pipeline from Kazakstan / Siberia and into East West pipeline

SECURITY OF SUPPLY

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Europe– European model is very similar– Pipeline import – 230 bcm (165 bcm from Russia-Rest from Algeria, Netherlands

and Norway)– LNG about 50 bcm from Middle East and Atlantic basin– Roughly 120 bcm from domestic production within Europe (mainly North Sea)

SECURITY OF SUPPLY

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POSSIBLE INDIAN MODEL

Estimated demand in 2011/12 is about 104 bcm to be met by

Existing Domestic Supply : 40 bcm

Anticipated (GSPCL + RIL) : 34 bcm

Total : 74 bcm

LNG : 30 bcm

104 bcm

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC/JV/PVT) (A) 80.54 119.98 115.97 113.09 108.30

Additional anticipated supply (B) (GSPCL + RIL) 74 84 94

LNG (C ) 30.45 33.60 52.50 70.00 83.12

Total Supply (A+C) Scenario 1 110.99 153.58 168.47 183.09 191.42

Total Supply (A+B+C) Scenario 2 110.99 153.58 242.47 267.09 285.42

Demand (MMSCMD) 178.97 196.39 221.86 265.16 282.58

Demand Supply Gap 1 67.98 42.81 53.39 82.07 91.13

Demand Supply Gap II 67.98 42.81 -20.61 -1.93 -2.87

INDIA• 25% (30 MMSCMD) of Indian consumption is LNG based imported at mainly

three terminals in Western India (Dahej, Hazira and Dhabol)• 75% domestically produced in offshore Bombay.• India’s Gas Supply/demand projections (MMSCMD)

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INDIA

• This assumes that – Current 10 bcm LNG supply will increase to 30 bcm by

commissioning of Kochi, Mangalore, Ennore and possibly Mundra and.

– GSPCL and RIL supply of 34 bcm will come on stream on time

• Question is – What happens if these outcomes did not materialize– How the growth of at least another 30-40 bcm / year beyond

2011/12 will be met– Following the European and Chinese model, India should be

able to balance supply portfolio by

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• Seeking new LNG supply sources. May be from Papua New Guinea and NW shelf of Australia (Fast developing LNG export countries)

• Diversifying the supply portfolio to pipeline import of some 30-40 bcm by one or mix of the possible routes i.e. Iran-india, Turkemenistan / Afganistan / Pakistan

• Further diversification to unconventional sources (CBM, Hydrate) may bring say another 20-30 bcm. This will allow to achieve a balanced portfolio and move towards a secure supply portfolio

INDIA

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ASIAN GAS GRIDFurther supply security in Asia can be ensured by integrated pipelines Grid

- Mr. Manishankar Aiyer proposed an Asian Gas Grid in Teheran about 4 years ago. Following similar ideas, it is possible to conceive of an integrated Asian Grid bringing gas by pipeline from Iran and Central Asia

- Extension of the proposed pipeline from Kazakhstan to China to India and then going on to Korea and Hongkong.

- This system may enable bringing gas from Russia as well- Two more pipelines TAP (Turkemenistan-Afganistan-Pakistan)

may be linked to this network- Iran – India gas pipeline could also feed into this system or

remain an independent system- India could, if its supply exceeds demand i.e. due to

successful NELP rounds, export gas via these transit pipelines

- This model will need massive international co-operation among the transit countries, seller and buyer of gas. Uncertainties surrounding planned pipeline from Caspian Region to Europe points to the difficulties. It may be worth the attempt – may be more so than engaging in isolated and unrelated investment proposals around the world.

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WHAT ARE THE OPTIONS

Present Plan (to some extent speculative)

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CONCEPTUAL ASIAN GRID

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• Supply security in Asia can more readily be achieved by co-operation between transit countries for pipeline import, among buyers through broad understanding of terms and may be pricing

CONCEPTUAL ASIAN GRID

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- I will conclude by a quotation by Mary Kaldor in the recent book “Oil Wars”

She wrote“Leading consumer countries to pursue co-

operation strategies aimed at working together with (Energy) exporters,

multinationals and civil society to resolve conflict, promote human right and

democracy and prevent state failure”

The question is, are we pursuing this sufficiently in the energy sector?

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THANK YOU