This commentary is from USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energy
To subscribe email to energyreview@turkishweekly.net
EU Enlargement and the ongoing integration process within the organization, forcing it to increase activity in the field of energy policy. In this case, one of the key points is to provide alternative ways for the supply of oil and gas to the markets of the EU.
Depending on external supplies of energy, the EU mainly consumes energy resources, mostly from the Middle East and Russia. At the same time, transportation corridors from which oil and gas have been supplied pass through these regions. This situation could lead to a dependence on resources from these regions. And there is no guarantee that suppliers will not take advantage of the situation to achieve their political goals.
The EU Commission has also recently begun to actively pursue a policy to provide alternative sources of oil and gas, mainly from the countries of the Caspian region. New pipelines such as Nabucco gas pipeline and Pan-European oil pipeline which will pass through the territories of Romania, Serbia, Slovenia, Croatia and Italy are planned for construction. Current transport projects planned for the supply of crude oil and gas from the Caspian Sea. But an interesting nuance is that the EU still have not agreed with the countries of the region on the supply of oil and gas.
Although Azerbaijan interested in exporting its gas through the pipeline Nabucco, gas from that country will not be enough to fulfill this pipeline. For gas supplies from Uzbekistan, Kazakhstan and Turkmenistan is needed to build an additional Transcaspian gas pipeline. But realization of this facility is still not clear.
The main producer of natural gas in the region, Turkmenistan, linked to long-term contracts with Russia and China. This obligation could lead to ensure that Turkmenistan simply may not have additional amounts of gas for transporting it through Nabucco.
The same holds true for the situation with oil, the Baku-Tbilisi-Ceyhan oil pipeline through from which Azerbaijani oil is exported and expected run from Kazakhstan is already operates. Russia recently launched a project construction Burgaz-Aleksandropol for bypassing the Turkish straits. This pipeline will be the first transport corridor in the EU, managed by Russia. And no suspicion that Russia will make every attempt to transport foreseen additional volumes of oil from the Caspian region to Europe through this pipeline. In addition, Azerbaijan has chosen a new strategy for moving from the raw materials for the production and implementation in Europe of finished petroleum products.
In connection with this situation questions arise: How Pan-European oil pipeline will be filled if there are no additional quantities of oil to fulfill the existing pipeline. Kazakhstan also exported oil through the territory of Russia, and small quantities are transported by tankers to Baku and hence transferred with railroad till the Georgian port of Batumi on the Black Sea.
With regard to natural gas, in addition to seeking to fill Nabucco gas pipeline, the EU may face another unexpected problem, namely the increase in the production of liquefied gas. While gas prices are increasing, the costs of producing liquefied gas are reduced. By 2015, demand for LNG is expected to double. It is projected that by 2010 the proportion LNG in gas imports to the United States will raise to 8% and by 2025 will reach 15%. Thus, the net amount of LNG imports is expected to rise from 99 billion cu. meters in 2003 to 198 billion cu. meters in 2025.
To date in 10 countries, the first factory for the production of liquefied gas is under construction or design. One of the major gas producers in the world, Qatar in the near future plans to increase production by 20 million a year and go on the leaders. The post-Soviet Russia and Turkmenistan have also been preparing for a production of liquefied gas. The feature of LNG is that it may have to be transported over greater distances than is possible with transportation through pipelines. Thus, there are hundreds of none pipeline supplies in remote areas on land using LNG.
Another advantage of LNG is convenient marine transportation of liquefied gas tankers to the region of its consumption. The liquefied gas plays a strategic role during the peak of supplying gas because LNG is conveniently stored in tanks and used at the right moment.
Russia is planning to export its gas to markets in the United States and Mexico, and had already offered their wish. As a result, in the Leningrad and Murmansk oblasts of Russia, as well as on Sakhalin implemented on an industrial LNG production. Next to Turkmenistan, Azerbaijan may also planned LNG production, which could be started in the port of Ceyhan, where the Azerbaijani State Oil Company (SOCAR) plans to construct refinery plant.
In the case of the situation in the wake, common European pipeline projects may fail. Because these pipelines simply wouldn’t be oil and gas to be filled. Moreover, the profitability of these projects may be extremely low, because the pipelines pass through many different countries and to ensure that they have succeeded, they should be full of energy.
Gas might not even be enough for the mega project North Stream pipeline, which would connect Russia and Germany under the Baltic Sea. Two reasons raise, the first as it was mentioned before switching to the production of liquefied gas. The second reason is the probability of decreasing of gas production in Russia. Experts believe that in the next two years in Russia is expected sharp decline in gas production. Firstly, operated to date deposits are depleted. Meanwhile, till now oil companies were reluctant to invest capital in the exploration and exploitation of new deposits. And so there will be a shortage of gas in the domestic market and Russia.
Following the forecast is somewhat ambiguous for the EU Commission, by investing huge capital investments in such risky projects. Perhaps this was the way the EU is trying to streamline its overall foreign policy. EU members opt for a more independent policy in this matter, and therefore the implementation of these projects, to some extent, may provide a mechanism for overall policy. However, this mechanism can be achieved with a very high price.
Rovshan Ibrahimov, Editor, USAK Energy Review
This commentary is from USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energy
To subscribe email to energyreview@turkishweekly.net
