Tentative and tempestuous 2012

Perhaps 2012 will be remembered as a year of mixed signals. On the one hand, the economic crisis in Europe has deepened, despite all hopes for its disappearance. Many EU countries are officially in recession – experiencing severe economic contraction (e.g. Greece) – while others are only statistically enjoying growth. The latter includes the EU heavyweights (e.g. Germany, estimated GDP 0.8). These heavyweights have kept the 27 member union technically out of recession because of the size of their respective economies, which account for the bulk of the EU economy overall. The relatively good performance of a few EU countries with GDP growth rates of around 2% (e.g. Poland) cannot compensate for the poor or mediocre performance of others. The ongoing situation in Europe, if it continues, will likely push the remaining ‘healthy’ EU economies into recession. The growing economic problems of the Eurozone, the expanding public opposition to various austerity programmes in the affected countries and a strong dissatisfaction among the people of the healthier EU economies over their funding of recession-affected EU economies have created grounds for speculation about a possible voluntary, or forced, departure of some weaker EU economies from the union.

On the other hand, the Asian economies, by and large, have registered significant growth despite the economic decline of their main trading partner, Europe. Among the large Asian economies, Japan is practically the only one with low rates of growth: estimated to be around 1.7% for 2012, dwarfed by China’s estimated growth rate of slightly below 8%. Against a background of economic under-performance since its so-called bubble burst in early 1990s, many factors have prevented Japan’s economic growth, including the 11th March 2012 tsunami and earthquake, worsened by the Fukushima nuclear power plant incident. In its aftermath, the Japanese government’s closure of all the Japanese nuclear power reactors (to undergo stress tests) suddenly deprived the country of 27% of its generated electricity, causing major blackouts. By way of compensation, power generation of fossil energy-fired Japanese power generators was increased, resulting in a sudden and massive boost in the country’s oil, gas (LNG) and coal imports, at a phenomenal cost. Depriving the Japanese economy of a significant amount of funds needed for stimulating growth, the resulting increased cost of electricity has been a factor in damaging the price competitiveness of Japanese exports – at a time when Japan’s economy needs a major growth in exports. Affected by a lower demand from its European trading partners, Japan’s economy is now also suffering from lowering trade with China, its single largest trading partner, because of the ongoing ownership dispute between Tokyo and Beijing over certain islands in the East China Sea.

The North American economies have performed better than their European counterparts although their growth rates have been significantly lower than the Asian economy in general.

The year’s economic uncertainties have been accompanied by expanding political uncertainties in other parts of the world. The Arab Spring has so far brought about change of guards in Egypt, Tunisia, Yemen and Libya without fulfilling its promise of democracy. All of the newly established governments have faced continued mass political opposition challenging their legitimacy and survival, while Yemen, Libya and Syria have found themselves in civil wars. Iraq’s civil war has also continued nine years after the replacement of Saddam Hussein’s political system. No easy or realistic solution to ending these political and armed conflicts exists and the spillover to other Arab countries, particularly the oil and gas exporting countries of the southern Persian Gulf, is a conceivable scenario.

The Arab Persian Gulf countries, including Iraq, are among the world’s top 10 oil exporters, with growing gas exports (mainly LNG). The Arab Spring has created uncertainty about the availability and reliability of Arab supplies of oil and gas. As the only non-Arab Persian Gulf country, Iran (with the world’s second largest oil and gas reserves and on the top 10 list), has been experiencing escalation of its disputes with the Western countries over its nuclear energy programme. The resulting UN-approved and unilateral sanctions on Iran have targeted its oil exports. Although unlikely in the foreseeable future, the threat of a war in the Persian Gulf as a result of an attack on Iran (Western-led or sanctioned through Israel), which could threaten to expand to the entire region, has created concerns about the availability of Iranian oil, oil supplies from other countries in the region, and LNG exports from Qatar and Oman. The division of Sudan into two countries in July 2011 has since created uncertainty about its continued oil exports.

Europe has given up its rank to Asia as the world’s largest energy consumer. Europe’s ageing population and shrinking economies have decreased energy demand. While it will recover from its current economic crisis, it is unlikely to restore its 20^th Century economy, especially since Asia is determined to make the 21^st Century its own. This reality has guaranteed that Europe’s limited energy demand growth affects its pipeline projects. In fact, this reality has been one of the factors preventing the realisation of mega pipeline projects such as the South East Europe Pipeline project (10 billion m³/yr). It has also affected other projects such as Nabucco, which has now been trimmed from its 3300 km length to become West Nabucco (1300 km). Consequently, Europe, especially its EU part, will not be a major scene of pipeline construction in years to come. Having said that, the EU’s efforts to decrease its CO₂ emissions (to mitigate global warming) by replacing coal and oil with less polluting gas, has guaranteed some construction and/or expansion of gas pipelines.

With the world’s largest proven gas reserves, Russia has historically been the main gas supplier to the EU. Its share of the EU market is increasing thanks to the Nord Stream and will continue to increase as a result of other planned pipeline projects, including the South Stream. Russia has also been a major contributor in pipeline construction because of its growing oil and gas exports to Asia, as reflected in the completion of the second leg of the East Siberia-Pacific Ocean Pipeline.

Enjoying steady economic growth and a growing population with improving living standards, Asia is unsurprisingly facing an increased demand for fossil energy. Various factors have limited the share of non-fossil energy (renewables and nuclear) in Asia’s energy mix – including the high cost of development compared to fossil energy, technological underdevelopment keeping its yield (in case of renewables) limited, and the availability of oil, gas and coal to which the region is accustomed. These factors suggest that this status quo will remain in the predictable future, despite the necessity of decreasing CO₂ emissions.

Without any exception, all the Asian regions and countries have been experiencing growing demand in oil and also gas, encouraging pipeline construction for domestic distribution and exports. Consequently, Asia has been the main arena for pipeline activities in 2012.

Within this context, China’s quest for energy security has made it especially interested in neighbouring Central Asia with its large oil and gas reserves. Concerned about its lack of naval strength to secure the safety of its sea import routes, China has been increasing its imports of piped oil and gas from Central Asia and other regions, to diversify its suppliers and supply routes and decrease its reliance on tanker-based imports.

The Americas have seen pipeline construction activity, especially in gas transportation in North America. However, the region is behind Asia in this field. Of its major projects, the fates of its largest ones are unknown due to costs or environmental concerns (e.g. Keystone XL and Alaska).

Africa has had much fewer pipeline activities. The main cause for this has been low economic activity caused by political crises and civil wars, particularly in the case of the Arab countries (Egypt, Libya and Tunisia). In general, poor economic performance in Africa’s large economies and/or civil wars (e.g. in Nigeria) have accounted for small pipeline activity in the other regions.

This is an abridged version of the full article from Dr. Hooman Peimani, which was published in the December 2012 issue of World Pipelines, available for subscribers to download now

Written by Dr. Hooman Peimani.

Read the article online at: https://www.oilfieldtechnology.com/special-reports/29112012/global_oil_and_gas_pipeline_report_tentative_and_tempestuous_2012/