In the high-stakes arena of energy geopolitics, natural gas is rapidly emerging as the next big prize. What oil was to the twentieth century, natural gas will be to the twenty-first. Consider these recent developments:
As we went to press, Russia was restoring the flow of natural gas to Western and Central Europe after state-controlled Gazprom curtailed deliveries on January 1 in a bid to force Ukraine to pay the market price for gas previously supplied at subsidized rates. Although emphasizing the price issue, Russian officials apparently intended to constrict Ukraine's energy supplies as a way of punishing that country's pro-Western president, Viktor Yushchenko, architect of the Orange Revolution, for his overtures to NATO and the EU. Gazprom's pipelines to Western Europe (which buys a quarter of its gas from Russia) pass through Ukraine so it could siphon off some of the diminished supply, leaving very little for other customers and provoking fears of an energy crisis at the onset of winter.
A dispute between China and Japan over the ownership of an undersea gas field in an area of the East China Sea claimed by both countries has grown increasingly inflammatory, with China sending warships into the area and Japan threatening "bold action" if the Chinese begin pumping gas from the field. The conflict has soured relations between Beijing and Tokyo and provoked a strong nationalistic response from the populations of both countries. The huge anti-Japanese demonstrations in Shanghai and other Chinese cities last April were prompted, in part, by Tokyo's announcement that it would permit drilling in the area by Japanese firms. A peaceful resolution of the dispute does not appear imminent.
Ever since India announced plans more than a year ago to build a natural gas pipeline from fields in Iran to its own territory via Pakistan, the Bush Administration has been applying pressure on New Delhi to cancel the project, claiming it will undermine US attempts to isolate Tehran and curb its nuclear efforts. "We have communicated to the Indian government our concerns about the gas pipeline cooperation between Iran and India," Secretary of State Condoleezza Rice announced after meeting with Indian Foreign Minister Natwar Singh on March 16. But the Indians have continued talks with Islamabad and Tehran over the pipeline plan.
The United States is becoming increasingly dependent on natural gas. This country now relies on natural gas for approximately one-fourth of its total energy supply, more than from any source except oil. As a result, the economy has become more and more vulnerable to fluctuations in gas supply and pricing--a vulnerability that should be especially evident this winter as gas prices hit record levels, with painful effects on the poor. Natural gas provides approximately 14 percent of the energy used to generate electricity in this country, 45 percent of home heating fuel and 31 percent of the energy and petrochemicals consumed by agriculture and industry. Gas is also used as a feedstock for the manufacture of hydrogen, a promising new entrant in the race to develop alternative fuels.
The United States currently relies on North American supplies for most of its gas, but with those reserves being depleted at a rapid pace and few untapped fields available for exploitation, need for gas from other regions is growing and energy plants seek more gas from foreign suppliers like Qatar, Nigeria and Russia. As with oil, America could become heavily dependent on foreign suppliers for essential energy needs, a situation fraught with danger for national security. Many of America's key allies, including the NATO powers and Japan, are dependent on imports.
As the global output of petroleum begins to contract in the decades ahead, industrialized nations will increasingly rely on natural gas. According to the Energy Department, the world's known gas reserves stood at 6,076 trillion cubic feet in 2004. In terms of energy output, this is equivalent to approximately 1,094 billion barrels of oil, or approximately 92 percent of known petroleum reserves. But because the world is consuming a smaller proportion each year of the remaining gas supply than it is of the remaining oil supply (1.5 percent as compared with 2.5 percent), gas should remain relatively abundant even after the supply of petroleum begins to contract. Considerable untouched gas is also believed to reside in remote "stranded" fields that could someday be added to the tally of proven reserves, further enhancing the fuel's role in the global energy equation.
Because natural gas is more environmentally friendly than oil or coal (it releases half as much carbon dioxide as coal for equal energy output, and a third less than petroleum), it is attractive to countries seeking to reduce their greenhouse gas emissions in accordance with the Kyoto treaty. In Europe gas's share of all fuels used in generating electricity is projected to rise from 18 percent in 2002 to 29 percent in 2030. A similar trend can be expected in the United States, if Congress or some future administration moves to reduce the nation's emissions of CO2.
Developing nations like China, India and South Korea, increasingly aware of the environmental consequences of their excessive reliance on oil and coal, are also turning to natural gas. According to the Energy Department, gas consumption in China will grow by an estimated 7 percent per year between 2001 and 2025, five times the rate for the United States and the largest for any major industrial power; India and South Korea are also among the fastest-growing gas consumers. These projections help explain the aggressive steps being taken by these countries to secure additional supplies of gas.
The rising worldwide demand for gas is also influencing relations between the major consuming nations and their principal suppliers. A key factor in the geopolitics of natural gas is the heavy concentration of reserves in a relatively small number of producing countries. All told, the top ten gas producers harbor 76 percent of the world's proven reserves, while the top five--Russia, Iran, Qatar, Saudi Arabia and the United Arab Emirates--hold nearly 67 percent. This means, of course, that these countries are in a very strong position to control the global flow of gas and to influence market forces.
Russia, which owns 26.7 percent of the world's proven gas supplies (compared with 2.9 percent for the United States), will play a dominant role in the energy field for many decades to come. Although the United States and Russia produced similar amounts of gas in 2004-05 (543 billion and 589 billion cubic meters, respectively), America's output was about 10 percent of its total reserves while Russia's output was only 1 percent.
Russia already supplies a large share of Europe's natural gas, and when new pipelines are constructed, it will be capable of supplying vast amounts to China, Korea and Japan--even the United States, eventually. Until now, the Russians have been very careful to avoid giving the impression that they intend to exploit their dominant position in Europe for political advantage. Nevertheless, Moscow has been accused of engaging in such practices in the past: In December 2000, for example, it temporarily suspended gas deliveries to Georgia in a move perceived by many Georgians as punishment for the failure of its leaders, notably then-President Eduard Shevardnadze, to defer to Russia on key regional issues. The current blockage of gas to Ukraine can be seen as another instance of the same tactic.
Officials of the European Union are worried about the growing role of Gazprom in the delivery of natural gas to Europe. At present, Gazprom supplies approximately 40 percent of Europe's natural gas, and its share is likely to grow as gas fields in the North Sea are exhausted. Fearing that Moscow may someday exploit its role as Europe's major gas supplier to wring political concessions from its customers, EU officials have called for greater diversity in the procurement of energy--so far, to little avail.
Iran is also a major producer of natural gas. Under increasing diplomatic pressure from the Bush Administration to halt its suspected pursuit of nuclear weapons, Tehran has been eager to establish joint production and export projects with friendly nations in Europe and Asia. In the past two years alone, it has signed several multibillion-dollar deals with companies from France, Italy, Norway, Turkey, Japan and India for joint development of offshore gas fields in the Persian Gulf and the construction of new pipelines to Europe and Asia. Capping this drive was the signing in October 2004 of a $100 billion, twenty-five-year contract with the China National Petrochemical Corporation (Sinopec) for the joint production and export of liquefied natural gas (LNG), much of which will ultimately go to China. While all this makes perfect commercial sense, given Iran's need for foreign partners in the management of these ambitious projects, it is safe to assume Tehran is also seeking to increase the number of allies it can turn to in case of a showdown with the United States.
Qatar has tacked the opposite way, using its huge gas reserves to establish close ties with Washington and to insinuate itself beneath the US defense umbrella. Under a $10 billion, twenty-five-year agreement signed in 2003, ExxonMobil will build the world's largest LNG shipping facility in Qatar. Much of the resulting liquid will go to the United States to be converted back into gas. This will entail the construction of new LNG terminals at ports on the US Gulf Coast, a major undertaking.
Like Qatar's, many of the world's largest deposits of natural gas are located far from the areas where demand is greatest. The most efficient and economical way to transport gas to distant markets is by pipeline. As a result, vast natural gas pipeline networks have been built in North America, Europe and the former Soviet Union, and many more such conduits are under construction. These networks are easiest to construct on land or in relatively shallow, enclosed bodies of water like the Mediterranean and the Black Sea, both of which are now traversed by gas pipelines.
At present, however, it is impractical to build gas pipelines beneath a large ocean like the Atlantic or Pacific, so gas traveling from the Middle East or Africa to the United States or Japan must go by ship. Unlike crude petroleum, which can be pumped directly from the ground onto waiting ships, gas must first be converted to a liquid by cooling it to extremely low temperatures (around -160° centigrade, or -260° Fahrenheit), transported on mammoth refrigerated vessels and then converted back to a gas by raising its temperature, at giant regassification plants in the receiving country. This is very expensive and energy draining, making seaborne transport a far less attractive proposition than pipeline delivery. Still, in their hunger for ever-increasing supplies of energy, more and more countries are building LNG terminals in their harbors and negotiating with major gas suppliers like Iran, Qatar and Nigeria for long-term contracts.
Whether natural gas is transported by pipeline or ship, the growing commerce in it is likely to nurture new forms of international cooperation, like that between longtime rivals India and Pakistan, both desperate to boost their energy supplies in order to sustain strong economic growth. In June energy ministers from the two countries set up a joint working group to plan construction of a $4 billion, 1,700-mile gas pipeline from Iran, and ground breaking is projected for sometime later this year--unless, of course, the Bush Administration succeeds in arm-twisting one or the other into canceling the plan.
India is also looking eastward for additional supplies of natural gas. In January its officials met with their counterparts from Burma and Bangladesh to discuss the construction of a gas pipeline from Burma to India via Bangladesh. Such an arrangement would frustrate US efforts to isolate Burma for its egregious human rights behavior.
Increased cooperation in the transport of natural gas is developing too among Russia, China, Japan and the two Koreas. At the center of these efforts are the vast reservoirs of natural gas lying off Sakhalin Island in Russia's far east. To move this gas to international markets giant energy firms, including ExxonMobil and Royal Dutch/Shell, will build a huge LNG facility on Sakhalin's southern tip and at least one major pipeline. One pipeline is expected to extend from Sakhalin to northern China, while another might go to Japan; some visionaries have also proposed a branch line extending to South Korea via North Korea (a project that, if undertaken, would go a long way toward cementing the increasingly warm relations between the two). The LNG, meanwhile, will travel by ship to terminals in Japan and possibly the United States, if new LNG regassification plants are constructed along America's Pacific coast and/or in Baja California.
If the United States is to boost its imports of natural gas significantly, it will need many more LNG terminals in US harbors (there are only four now operating), and this prospect has already aroused considerable opposition from local authorities and environmentalists, who worry about the risk of explosions and other calamities. In a move little noticed by the American press or the public, Congress voted in July (as part of the new energy bill) to give the government the power to override local governments in the placement of future LNG terminals, a step that could lead to the construction of many more such facilities on the Atlantic and Pacific coasts and a sharp growth in US reliance on imported gas.
Although demand for natural gas has engendered cooperation between once-estranged nations, rival claims to oil and gas fields have frequently caused friction, even armed conflict. This has most often occurred in cases involving disputed offshore territories, notably in portions of the South China Sea, the East China Sea and the Strait of Korea. All these areas are believed to harbor substantial reserves of hydrocarbons in one form or another--oil and gas combined, gas alone or, as in the Korea Strait, gas hydrates (a crystal-like substance made up of methane and ice that can be converted into natural gas)--and all have been the site of violent or threatening confrontations between forces of the rival claimants involved. In each case, moreover, the United States is allied with one or more of the contending parties.
The most intense and prolonged of these conflicts has occurred in the South China Sea, a relatively shallow body of water believed to harbor substantial reserves of oil and gas. All of the countries with shorelines on the South China Sea--Brunei, China, Indonesia, Malaysia, the Philippines and Vietnam--have laid claim to a 200-mile offshore Exclusive Economic Zone in the area, many of them overlapping with one another, and all have laid claims to some or all of the small islands and reefs that dot the region. China, the dominant power in the area, claims all the islands and has been particularly aggressive in asserting its sovereignty over them--on several occasions using military force to drive away ships belonging to Vietnam and the Philippines. Several attempts have been made by the Association of Southeast Asian Nations to resolve the dispute peacefully, but China has not renounced its claim to the islands and continues to expand its small garrisons on some of the larger islets.
Japan is a party to two maritime boundary disputes in the region--the one with China discussed earlier and another with South Korea over a cluster of small islands in the Strait of Korea located roughly midway between the two nations. Here, too, the conflict revolves around the boundary between two overlapping Exclusive Economic Zones and the ownership of energy supplies that are thought to lie in the disputed territory--in this case, gas hydrates that could be mined and converted into natural gas. Efforts to resolve the conflict peacefully have so far come to naught, and warships and planes from both sides patrol the disputed area and occasionally approach each other in a threatening manner, risking an armed confrontation.
Whether the benefits of cooperation in procuring natural gas will come to be seen as more appealing than the rewards from unilateral action remains to be seen. One thing is certain: The world's growing demand for natural gas will play an ever more significant role in shaping the relations between major supplying and consuming nations. The need for energy will increasingly set the agenda of the major powers, and natural gas--long in the shadow of petroleum--is about to claim center stage.