Global gas pipeline projects roundup: part 1

Perhaps 2015 will be remembered as an exceptional year in the contemporary history of the global energy markets. Starting from the preceding year, oil and gas prices have fallen to atypical levels after experiencing about one and a half decades of increase. The phenomenal price decline has been caused in short by an abundance of oil and gas supplies, way above the global demand, thanks to a large and growing number of suppliers and lower-than expected global consumption.

Lowering economic activities, sluggish growth or recession in the decade-long troubled European countries, recession in Japan, below-projected growth rate in China, and poor economic performance of many energy-producers such as Canada and Venezuela have negatively affected energy demand.

Economic meltdown in many Arab countries due to inter-state – but mainly intra-state – armed conflicts and various sanctions on more than a handful of countries to include Iran have all decreased their purchasing power. This has been translated to lower economic activities in the major western economies; declining energy consumption with a varying extent has been the logical outcome.

Phenomenally low prices after years of three (or nearly three) digit prices have reduced concerns over possible major oil supply interruptions, as the large number of suppliers have practically rendered such a scenario unrealistic.

Led by Canada and the USA, the so-called unconventional oil and gas revolutions have been a major contributing factor to global over-production, dwarfed by just about all suppliers maximising their conventional oil and gas production at the same time as newcomers emerge in previously unthinkable locations (Cuba and Israel).

Certain factors have contributed to the vast availability of gas supplies, which is set to last in the foreseeable future. A large and growing amount of piped gas, a major increase in LNG production thanks to ongoing global capacity expansion projects (designed to raise annual production capacity by 100 million t by 2018), and the rise of current (e.g. Papua New Guinea since 2014) and future (Canada and USA) exporters have all contributed.

This certainty about supply availability even under the worst case scenarios has caused the freefall of oil and gas prices, despite wars in exporting nations such as Iraq, Yemen and Libya, and emerging polarisation in the Persian Gulf pitting the Saudi-led Arab coalition of oil/gas exporters (UAE, Qatar, Kuwait and Egypt) against Iran over Yemen, Syria and Iraq.

Falling prices has prompted a growing number of cancelled, delayed, suspended and slowed-down conventional oil and gas developments, repair, maintenance and LNG liquefaction projects now spilling over to shale gas and oilsands projects in North America. Of course, lowering investment in new projects and the inevitable lowering production at currently operating fields will likely cause shortages in about a decade or so if the current trend continues.

A slow down in pipeline projects, especially in the three major energy-consuming regions – Asia, Europe and North America – has been an unsurprising by-product of this situation.

Respective examples include China’s cold feet about signing a firm agreement with Russia for the Power of Siberia II project, the delayed Trans-Adriatic Pipeline (TAP) set to start next year, three years after the Nabucco project was aborted in its favour, and the unknown fate of the Keystone XL.

Politically-motivated measures have also aggravated this situation, as reflected in Russia’s cancellation of the South Stream project in December 2014, when the EU stopped the construction of its Bulgarian segment on technical grounds (violation of the EU competition rules), which convinced Moscow on ending a losing battle with Brussels.

Yet, many other projects have been envisaged, discussed, agreed and implemented. Russia has been involved in many of them, even in Europe, notwithstanding the EU’s worsening ties with Russia, particularly over Ukraine and Syria.

The main arena, however, especially for major interstate projects, has been Asia. China has remained the major protagonist as the engine of global growth, whereas India’s domestic projects have been significant. However, other parts of the world’s largest and most populous continent have been less active, particularly West Asia, including the Persian Gulf and Southern Caucasus.

The Americas have been active mainly in intra-state projects. The USA has also been pursuing inter-state projects with Mexico. Its large joint project with Canada (Keystone XL Pipeline) is frozen only partly on environmental grounds. The recent increase in domestic conventional and unconventional (shale) oil production is set to continue its upward course to make the US question the wisdom of committing the country to long-term imports of more expensive and pollutive oilsands-based Canadian oil.

Europe has also had its share of pipeline activities, but at a much lower extent compared to Asia. Added to the previously discussed factors, the continental ageing population, loss of economic supremacy to Asia and the Americas late in the 20th century and growing use of more pollutive, but much cheaper coal explain this reality. The bulk of its ongoing and future projects concern gas, namely to replace Russian gas with that of another supplier, and to decrease its CO₂ emissions. The recent conclusion of the Russian-led Nord Stream II and the growing continental consumption of coal seem to serve the opposite objectives.

Pipeline activities have been modest in Africa. Excluding Algeria, all other North African oil and gas rich countries (such as Egypt, Libya, Sudan and South Sudan) have been shaken by the 2010 - 2011 Arab Spring and its aftershocks, giving rise to new dictatorial regimes and growing terrorist groups.

Written by Dr Hooman Peimani and edited by Elizabeth Corner. This article was published in full in the December issue of World Pipelines. To read the full article, click here.

Parts 2, 3 and 4 coming soon.

Read the article online at: https://www.worldpipelines.com/project-news/24122015/global-gas-pipeline-projects-roundup-part-1/