By Robert M Cutler
MONTREAL - Competition in the Southern Gas Corridor from the Caspian Sea basin to Europe continues to heat up, with more details about the Trans-Anatolian gas pipeline emerging and Russia's Prime Minister Vladimir Putin bringing forward construction of the South Stream pipeline under the Black Sea.....
Putin ordered construction of the Russian-Turkey-Europe South Stream pipeline to start by the end of 2012 instead of in 2013 as previously planned, despite having no identified sources for gas and no commitments for purchases.
The Trans-Anatolian pipeline (TAGP), which will run from Turkey's eastern to its western border, is also referred to as "Trans-Anadolu" and sometimes by its acronym in Turkish TANAP. Azerbaijan's energy minister, Natik Aliev, and his Turkish counterpart, Taner Yildiz, last week signed the Memorandum of Understanding (MoU) for TAGP construction, fixing its "initial" volume at 16 billion cubic meters per year (bcm/y). The agreement also established that the State Oil Company of the Azerbaijani Republic (SOCAR) will build the pipeline with the two Turkish state firms - BOTAS and TPAO.
Reports indicate that the TAGP will be 80% owned by SOCAR, enough to permit the Azerbaijani state firm to negotiate advantageously with major foreign energy companies wishing to use the pipeline, by offering them a significant minority share of ownership while still retaining a majority stake for itself.
Yildiz has said separately that SOCAR will establish the construction cost and hinted at a figure around US$5 billion; other figures in the press range up to from $7 billion to $9 billion. This range will be better defined as feasibility studies proceed and the planning process develops.
While the TAGP has symbolically been started already, real construction is scheduled to begin in 2012 and finish by 2017, when the gas from the offshore Shah Deniz Two deposit is scheduled to be available for shipment and sale to foreign customers. Shah Deniz Two is estimated to hold 1.2 trillion cubic meters of gas. Of the 16 bcm/y that it will start producing in 2017, 10 bcm/y is destined for consumption in Europe and the remainder for Turkey either to consume or sell onwards.
It is significant that the TAGP's partners now refer to the 16 bcm/y figure as the pipeline's "initial" volume. This indicates the intention that other pipeline projects should be integrated with it, rather than the TAGP with them. Thus Stefan Judisch, who heads the supply and trading unit of Nabucco's German co-principal RWE, told Bloomberg News that TAGP construction "raises questions about access and financing" even as it would lower Nabucco's investment costs and shorten it. According to Judisch, banks might require a "pre-completion guarantee" in order to be assured that "gas actually flows".
Judisch also indicated that the TAGP's entry into the pipeline competition field could complicate negotiations with other potential Southern Gas Corridor suppliers. Without naming them, he clearly intended to indicate Iraq and Turkmenistan, which could require guaranteed access to the pipeline system and upon whose participation (or at least one of them) depends the realization of the Nabucco's full 31 bcm/y planned throughput.
Meanwhile, in the attempt to steal a march on Nabucco, construction of which is scheduled to begin in 2013, Putin has ordered that the symbolic start to construction on South Stream be moved ahead to the end of this year. This follows the conclusion, at the end of December, of an agreement with the Turkish government for construction to proceed. The leader of the Turkish opposition Republican People's Party (CHP), Kemal Kldarolu, has criticized the government, alleging that the deal is a special favor to industrial circles close to the ruling party.
Speaking with the Turkish media at an end-of-the-year review of political and economic developments, Kldarolu said the deal "contradicts Ankara's interests and will destroy the country's plans to become a regional energy hub". Earlier in 2011, Ankara had informed Russia that it would cease to take 6.6 bcm/y from Gazprom through the Blue Stream natural gas pipeline (Russia to Turkey under the Black Sea). Gazprom announced its readiness to sell directly to Turkish industrial companies but found no takers for its offer.
Now Gazprom has reduced its prices at the same time when the Turkish government has given its approval for the South Stream pipeline to be constructed through in the waters of its exclusive economic zone (EEZ). Kldarolu points out that the price reduction will be valid for only a limited time while the South Stream would have long-term effects not only on the economic but also on the geo-strategic level, while increasing the country's dependence on gas from Russia.
Notwithstanding this bilateral agreement permitting construction through the EEZ and Putin's wish to accelerate the pipe-laying plan, it is far from a sure thing that South Stream will be built. Not only is the final route of the pipeline undefined, but it is not even clear which country it would make landfall at on the western Black Sea coast.
Nor are even the outlines of its putative route westward from there set out programmatically. Gazprom head Aleksandr Medvedev continued to be intentionally vague on this matter when speaking to the press at the signing ceremony. Such a decision, he said, would be taken only at the time of a future final investment decision.
Originally a project of Russian gas giant Gazprom, South Stream has been pushed by the Russian government as it has sought to increase its lobbying weight in Brussels by co-opting first the Italian firm Eni (which cooperated in laying the Blue Stream pipeline on the Black Sea floor a dozen years ago), then the French firm EdF and the German BASF.
The project is a bargaining chip not only against the TCGP but also against Ukraine's pipeline transmission system. Russia and the EU are seeking to reach a financial understanding to cooperate in the reconstruction of this system at the same time as Russia and Ukraine are bilaterally negotiating terms for future delivery of gas to Ukraine, with price as a huge sticking point.
According to a report by the independent agency Ukrainian News, Mykola Tomenko, the deputy chairman of Ukraine's Verkhovna Rada, has stated that Russia demands the privatization of the Ukrainian gas transportation system and the Naftohaz Ukrainy national oil and gas company. Such privatization is currently banned by a parliamentary act having the force of a constitutional amendment.
Gazprom's Medvedev has publicly challenged the valuation placed by Ukraine on its pipeline and energy transmission system. Over the past 10-15 years, Russian energy companies have taken control of energy infrastructure in other Soviet successor states by offering to forgive energy debts in return for expropriation of the physical plant. It appears that Russia has never taken its eyes off Ukraine's.
By Humberto Marquez
CARACAS - Countries that have always depended on imported oil and gas, like Chile, Paraguay, Poland or Ukraine, and especially heavy consumers such as the United States and China, could become self-sufficient in natural gas in the near future and even start exporting it.
Shale gas - natural gas extracted from shale rock - may well be several times more abundant than the proven reserves of conventional natural gas on the planet, according to the US Energy Information Administration (EIA). Moreover there are large volumes of natural gas in sandstones, and other non-conventional sources.
But the real news from EIA studies is that shale gas is abundant in territories previously regarded as poor in fossil fuels) or dependent on imports: China, the United States and Argentina head the list, but large reserves are also found in South Africa, Australia, Poland, France, Chile, Sweden, Paraguay, Pakistan and India.
"The global energy chessboard is changing, and markets will be realigned. Countries that have never had so much available energy will become self-sufficient, and perhaps even exporters," Luis Alberto Terrero, head of the Venezuelan Gas Processors Association, told IPS.
As gas supplies grow, "fossil fuels may become cheaper, the growth of alternative energies will slow down, and new alliances, investments and trade networks will be established," Terrero said.
Global proven reserves of conventional gas total 6,608 trillion cubic feet (Tcf), according to statistics from British-based oil giant BP, and the largest deposits are in Russia (1,580 Tcf), Iran (1,045 Tcf), Qatar (894 Tcf) and Saudi Arabia and Turkmenistan (283 Tcf each).
An EIA study published in April 2011 found practically the same volume (6,620 Tcf) of shale gas deemed recoverable in just 32 countries, and the reserves are differently distributed, with China possessing 1,275 Tcf, the United States 862, Argentina 774, Mexico 681, South Africa 485 and Australia 396 Tcf.
Furthermore, some countries long dependent on foreign suppliers would have a huge resource base compared with their consumption: for example France and Poland, which import 98% and 64%, respectively, of the gas they consume, are in possession of shale gas reserves estimated at over 180 Tcf each.
In South America, giant oil producer Venezuela is estimated to have only 11 Tcf of shale gas, barely one-twentieth of its conventional gas reserves, while Brazil and Chile, which import about half the gas they consume, possess estimated shale gas deposits of 226 and 64 Tcf, respectively.
Paraguay has an estimated 62 Tcf of shale gas, nearly three times the conventional gas reserves of Bolivia, the top exporter of natural gas in South America. Uruguay, which imports all of its oil and gas as it lacks both, has at least 21 Tcf of shale gas.
"So far this century, this is the biggest innovation in energy, in terms of scale and impact," according to US analyst Daniel Yergin, author of a classic history of the oil industry, The Prize: The Epic Quest for Oil, Money and Power, who emphasized that one-third of all the gas produced in the United States is already extracted from shale gas reserves.
High volumes of water are used for hydraulic fracturing, or fracking, the method of extracting shale gas, which can also cause seismic activity. Disposal of the waste water may cause pollution of surface and groundwater. Extracting shale gas from a platform with six wells can use 170,000 cubic meters of water.
Therefore exploration for non-conventional gas must go hand-in-hand with technologies to reduce water consumption and the other harmful effects, including destruction of the landscape.
Terrero noted, for example, that exploitation of extra-heavy crude in Venezuela's Orinoco Belt or under the North Sea used to be regarded as technologically non-viable, yet today production is going full steam ahead, while drilling for oil and gas in the Arctic will proliferate from 2012 onward.
Furthermore, high oil prices of over US$100 a barrel encourage operators to explore for, produce and sell not only shale gas but also "tight gas" (trapped in impermeable, non-porous sandstone or other rock formations) as well as shale oil and "tight oil", similarly locked underground.
"We're heading toward greater availability of fossil fuels. Oil, gas and coal represent 80% of the global energy mix, and will continue to predominate for decades," Kenneth Ramํrez, a professor of geopolitics and energy at the Central University of Venezuela, told IPS.
In 2010, world consumption was 12 billion tonnes of oil-equivalent, including 4.03 billion tonnes of oil (up from 3.57 billion in 2000), 3.56 billion tonnes of coal (2.4 in 2000), 2.86 billion tonnes of gas (2.17), 776 million tonnes of oil-equivalent in hydroelectricity (600), 626 million in nuclear energy (584) and only 159 million in renewable energies (51 million in 2000), according to BP.
In Ramํrez's view, "the abundance and new distribution of reserves of shale gas and other non-conventional fossil fuels will affect predictions about the relationship between energy and the economy, and will have major geopolitical effects.
"An initial effect is that the largest and best discoveries are outside the Organization of the Petroleum Exporting Countries," which will see its influence on the global energy market diminish in the long run, he said.
At the same time, Ramํrez said, Russia will seek to consolidate its position as a major global actor on the basis of its energy resources; Canada will emerge as a world oil power; and the United States, its supply secure, could feel freer from the vagaries of Middle East conflicts.
The same could be said for emerging nations of the global south, such as China, India, South Africa and Brazil, which will be able to avail themselves of abundant non-conventional gas.
In Latin America, production in Bolivia or Trinidad and Tobago, or the offshore projects in Venezuela, no longer appears so essential for the long term, while in the northern Mexican state of Coahuila and the southern Argentine province of Neuquen, drilling is under way for the first shale oil and gas extractions.
The big disadvantage of shale gas, despite the industry's hopes for developing more eco-friendly technologies, is its impact on the environment during production and transport.
The extraction of shale gas requires large quantities of water mixed with sand and chemical additives. The carbon footprint - the amount of carbon dioxide-equivalent greenhouse gases emitted by the process - is much greater than for conventional gas production.
Fracking involves injecting this fluid under pressure into drill holes deep in the earth's crust, to create fractures in the rock that increase the rate of recovery of shale gas. This process runs the risk of damaging the subsoil, soils, surface and underground water tables, the landscape and communication routes if the arrangements for extracting and transporting the material are defective or mishandled.
More methane, a potent greenhouse gas, is released during shale gas extraction and use than with conventional methods, and this adds to global warming. But so far, environmental concerns have not abated the global thirst for energy resources like those trapped in shale formations.....