Years ago, one of my mentors at Mobil E&P politely listened to me as I extolled the financial possibility of "just build a pipeline through three countries into [the un-named country] and monetize the discovery in three years!" Then, as a result of his 40 years of industry experience, he carefully and graphically explained to me how natural gas volumes move through cross-border pipelines and "magically" disappear, leaving the producer with a fraction of the annual revenue anticipated and the end-user partners scratching their heads wondering where their gas supplies went.
The guidance remains as valuable today as it was in the 1980s. Cross-border pipeline gas supplies are not as secure as LNG. Producers and consumers have relied on water-borne LNG infrastructure since the 1970s to bring stranded gas resources to end users. The evidence spans Europe, Asia and South America.
Within the last decade, Russian gas pipeline flows into Europe through the Ukraine and Belarus have been subject to ocassional extend interruptions. Not only have technical failures in the transportation system interrupted flows but also financial disagreements on the price of offtake gas and tariffs between the producer/pipeline owner and the governments whose lands the pipeline transits.
Recently, Turkey has felt the negative impacts of a price dispute between Turkmenistan and Iran. Iran purchases Turkmen gas for domestic consumption allowing them to sell their own production volumes to Turkey, effectively a geographic volume swap. But for the last few weeks, gas has not flowed from Turkmenstan into Iran because of a negotiation breakdown. As a result, Iran has curtailed gas flows to Turkey, forcing Turkish officials to purchase replacement gas volumes from Russia through the trans-Black Sea pipeline, Blue Stream, and make spot purchases of LNG cargoes to carry the country through the disruption.
Both examples involve more than the two producer and consumer countries. At least one "transit" country has inserted itself into the pipeline security discussion. The transit countries are primarily focused on the revenue possibilities. The injured parties are the end users who must endure shortages and pay high costs to secure replacement volumes and the producers whose project economics are damaged.
Governments change, energy ministers are replaced and financial expectations evolve over the life of the gas field exploitation. As long as we can depend on free, unfettered, transit over the sea, only the producer and end user are involved in the financial and security issue discussions around LNG supplies. Even though it is more expensive than delivery via a pipeline, LNG supplies offer greater confidence to both parties. It’s a lesson that repeats itself over time and location. My mentor's lesson remains correct, even after all these years.
This is an excellent article and the situation in Turkey and Iran will bring the effect of this article home to other Countries in similiar situations.
The article takes into account only the Gasprom arguments.
Monopolization of gas import from Russia and Caspian region, actual transit prohibition through Russian territory, and also, ignoring of the Energy Charter Treaty and WTO's principles by the biggest producer of gas. These problems decrease the deliveries safety. The transit countries are also in the need of large gas import. These
demands can not be ignored. Analyse deeper, please!
Ihor S:
Thank you for your view from the transit country perspective. There are also concerns in the countries west of the Ukraine who depend on reliable gas deliveries. Clearly the geopolitical issues between Russia and the Ukraine contribute to the pipeline difficulties you speak of. This is the current example of trans-border contract concerns. Similar concerns have thus far prevented several other pipeline developments. Other examples I can recall from personal involvement are: Camisea (Peru) gas export to Brazil and Northwest Shelf (Australia) gas delivery to markets in SE Asia and China. Arriving at enduring contract terms when there are multiple parties and needs at the negotiation table is a very difficult task.