From the Editor: Big gas pipelines are an anachronism [Gas in Transition]
If Russia’s invasion of Ukraine and the upending of gas exports to Europe have taught both sides anything, it is that big trans-national gas pipelines can be a hostage to fortune.
They are notoriously difficult projects. Huge amounts of time, energy and capital are required for projects which sometimes never even get built.
Even if the resources backing a successfully completed pipeline are large, the production and delivery of gas depend on policy and politics at both ends of the pipeline, and in between, if the pipeline passes through transit countries, throughout its lifetime.
The argument in their support is that they create a mutually-beneficial economic relationship between exporting and importing countries, in part on the basis of joint investment and sunk cost. They allow large volumes of gas to flow between economies.
This is true, but when things go wrong, they can go badly wrong.
Pipelines gone bad
Nord Stream 2 is a prime example. Billions of dollars literally sunk under the Baltic Sea without a molecule of gas passing through to end users. It is not the only example.
The GreenStream pipeline, which connects Libyan supply with Italian demand, has been underperforming since the end of the Gaddafi regime. Commissioned in 2004, it experienced only seven years of full operation before seeing volumes become highly variable as Libyan oil and gas production suffered the effects of state failure.
Morocco has seen its gas supplies from Algeria cut off via the Magreb-Europe Gas Pipeline, which has impacted Algerian gas imports to both Spain and Portugal. Flows through the pipeline were closed from November 1 last year, a few months after Algiers cut off diplomatic relations with Rabat.
The West African Gas Pipeline (WAGP), which connects supply in Nigeria with Benin, Togo and Ghana, has also seen variable operation, owing to upstream problems in Nigeria and the development of gas production in Ghana. This has necessitated a reversal of flows along the pipeline’s most westerly section.
Nigeria-Morocco Pipeline proposal
Given the travails of WAGP, the current pursuit of the proposed Nigeria-Morocco gas pipeline, which would cross 12 countries and run for 5,660 km, seems highly questionable.
It would almost certainly take a minimum of a decade to construct and the timeline for all stages, in fact, spans 25 years. Even if the focus remained on connecting with Europe, over and above its regional African dimensions, it would bring gas to the continent at a time when European commitments to achieving net zero demand hugely reduced gas consumption.
With the big international oil and gas companies steadily divesting from onshore Nigerian gas assets, there are significant questions over whether Nigeria would be able reliably to fill the pipeline. Reserves do not equal production; Nigeria has proved oil reserves of 37 billion barrels, the 11th largest in the world, but production is just 1.6 million b/d, and is bumping along a 32-year low. Why should it be any different for gas?
Simpler and quicker
LNG is a much simpler and quicker solution. Projects can be delivered much faster than giant pipelines, not least because there are no international agreements to negotiate.
The speed with which LNG import capacity can be put in place is being demonstrated by Europe, although this cannot be considered the norm. Permitting has been hugely accelerated because of the prevailing emergency conditions. Europe is also benefitting from a surplus of Floating Storage and Regasification Units (FSRUs), which were being used as standard LNG Carriers.
As the supply of existing FSRUs is absorbed, projects will become dependent on newbuilds, for which there are currently few orders. This will extend project timelines as shipyard capacity is scarce.
The supply side is slower to adjust and that is a major problem. LNG buyers are lucky in the sense that Qatar had already started its massive new expansion of LNG capacity, based on its giant North Field, before Russia’s invasion of Ukraine; luckier still that the US has a pipeline of near shovel-ready LNG projects awaiting finance.
But, even if it takes time to build new LNG capacity, it is still far quicker than large transnational pipelines.
Flexibility is king
The advantages of LNG, already self-evident, have become much larger as the demand side of the gas market becomes more uncertain.
The energy transition is progressing, but at very variable speeds. Different countries have different starting points, resources and capabilities. The role of natural gas will be different in each case and will be affected by the development and ability to deploy new technologies.
As Europe eradicates its dependence on Russian gas, LNG demand will rise. This will be supported by declining European domestic gas production. However, a peak is inevitable as energy transition policies start to have a greater impact on European energy systems.
If Europe is to meet its net zero ambitions by 2050, gas use, and therefore LNG imports, must fall. Residual gas demand in Europe in the approach to 2050 is more likely to be met by existing pipelines than LNG for the simple reason that LNG can go elsewhere and pipeline gas cannot.
China and India present very different opportunities. As the two most coal-dependent countries in the world, both still expect an expansion of gas as part of primary energy supply and both will rely on gas imports as well as domestic production.
Many other countries fall between these two extremes. Some will choose increased gas use as a means of achieving early emissions reductions versus coal and oil; others may be able to leapfrog to a more sustainable energy system in one go; others still may make little progress and remain dependent on gas, as the cleanest burning fossil fuel, to provide their economies with energy over the longer term.
In a global market of shifting demand, trans-national pipelines make sense only as a last resort. It will fall to Russia, isolated from LNG investment and European markets, to build hugely expensive pipelines into Asia in a desperate attempt to find new markets for its abundant gas production. China, for one, stands to benefit, also, potentially, south Asian countries such as India and Pakistan. But it’s a grim prospect for Russia as it has destroyed its own bargaining power by trashing relations with its primary markets in Europe.
For gas producing countries with more choice, LNG offers the flexibility to play a role both in addressing Europe’s security of energy supply in the short to medium term and the energy transitions of major developing nations over a longer period. In short, in the new world energy order, LNG’s flexibility is king.