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2016: A challenging year? (Part 1)

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World Pipelines,

2016 has been a difficult year for the global economy. After years of recession and poor economic performance, Europe is still struggling to revitalise its economy. Brexit has not helped this due to its psychological impact on the future of the European Union (EU). However, this alone cannot be blamed for Europe’s dismal economy.

Various European sanctions on Russia over Ukraine have surely had a negative impact on many European trading economies, apart from reinforcing the recessionary power of a phenomenal decline in oil and gas prices on Russia’s energy export-driven economy.

Asia has also had its own economic challenges. They have partly arisen due to the global slowdown but also because of its own difficulties. Structural barriers have prevented Japan from securing a sustainable economic health since the early 1990s. This has kept the world’s third largest economy in a steady state of poor economic performance, interrupted by short-lived, low rate recoveries, despite the relatively good performance of its export sector.

China has expanded its global market, while its domestic one is still far below its potential. Its economic miracle since 1978 has primarily benefited its southern provinces. However, the rest of the country is still lagging behind. Beijing’s ongoing efforts to expand the reach of its market economy and foster the growth of China’s middle class will take approximately another two decades to bear fruits. China’s still impressive GDP growth rate is lowering in order to reduce its projected energy consumption.

Asia’s energy exporting countries have been severely affected, with oil prices more than halving and gas prices lowering amidst wars and sanctions that are worsening their economies. The energy rich and oil/gas exporting Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan and Persian Gulf countries have suffered extensively from such price decline.

Meanwhile, years of sanctions on Iran, of which the majority are still in place, and almost four decades of economic mismanagement have further deteriorated the country’s economy, despite last year’s nuclear agreement. Civil wars and expanding terrorist activities in Yemen, Iraq and Syria have been a major factor behind their devastated economies.

Africa has had more than its fair share of the global economic slowdown. Along with the price decline, its more prosperous northern oil/gas exporters have suffered from growing civil war and expanding terrorism in south Sudan, Libya and Egypt spilling over to a varying degree to its other African Arab states, including energy exporting Algeria. In its non-Arab southern part, small economies show relatively better economic performance compared to some of their neighbours. Energy exporting Nigeria is reaping the results of its economic mismanagement and years of civil war in its Delta region. The continent’s most economically developed country, South Africa, also has its own major economic challenges.

As a whole, the Americas’ economy is not doing well. Energy has had a positive effect on the American economy by offering domestically produced cheap fuels and decreasing the cost of imported ones. However, due to lowering oil and gas prices, energy has negatively affected Canada’s economy. Other continental energy exporters have also suffered the same problem, namely Mexico, Venezuela and Ecuador.

The difficult economic realities have been manifested in a slowdown in the global energy industry and, thus, pipeline activities. Major pipeline projects planned under different economic assumptions now seem unrealistic. A clear example is Gazprom’s West Route gas pipeline for exporting Russian gas to China for 30 years. China’s slower than projected economic growth has stalled this project.

Political factors have certainly affected some major pipeline projects, such as TurkStream. The pipeline, whose construction was expected to begin in 2016, was suspended because of worsening ties between Turkey and Russia that were escalated by Ankara’s shooting down of a Russian military aircraft in November 2015. However, the countries are reviving their ties. Economic and energy considerations have, however, undermined Brussels’ opposition to Gazprom’s Nord Stream 2 for strategic reasons as the project’s EU beneficiaries still are keen on its construction.

Current major pipeline projects are discussed in light of these realities and energy demand in the predictable future.

Part 2 coming soon!

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