TUESDAY, JANUARY 3, 2006
HOUSTON The dispute between Russia and Ukraine over natural gas supplies has implications for the fast-evolving international trade in natural gas.
While Gazprom, Russia's state-controlled energy giant, said on Monday that it would resume pipeline shipments of natural gas across Ukraine to customers in Europe, its ability to rattle nerves during the European winter served as a reminder of the growing influence of countries rich in natural gas reserves.
Global demand for natural gas, which is generally cleaner burning than other fossil fuels, is soaring.
Governments in gas-rich countries and international energy companies are racing to meet that demand with ambitious projects to transport natural gas to industrialized countries by pipeline or in tankers. The global oil market developed along similar lines decades ago, laying bare the risks in the United States and Europe of relying on imported oil from politically unpredictable countries.
"This further underlies the need for greater diversity of supply and more storage capacity for natural gas," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "Gas-importing countries will recognize the need to build in buffers."
At first glance, this newly robust international natural gas market would appear to put Russia in a strong bargaining position. Russia has the largest natural gas reserves, with 27 percent of the world's total, according to BP, the British oil and gas giant. Only two other countries rival Russia in natural gas reserves: Iran and Qatar, each with just over half the amount.
But analysts say concern over creating too much dependence on Russian gas, or natural gas from any one country, for that matter, may propel large gas-consuming nations to consider importing the fuel from a variety of sources or switching to other fuels for heat and electricity.
For instance, Finland, which shares a border with Russia, is moving ahead with plans to build the world's largest nuclear reactor, a move that would lessen its reliance on imported Russian natural gas.
The concentration of European natural gas imports from Russia may be why the threat of cutting off gas exports across Ukraine evoked Cold War-era fears, when the United States fretted about Europe's reliance on Russian gas. In fact, Russia, which has long viewed itself as a stable energy supplier to Europe, put energy security at the top of the agenda of the Group of 8, the club for the world's large, developed economies. Russia assumed the chairmanship of the group this week.
A more contemporary concern is related to the dispute's impact on large gas-exporting projects in Russia and elsewhere. Gazprom, for instance, has been aggressively promoting projects to export Russian natural gas to the United States. In a move that focuses attention on the scramble for natural resources in Arctic areas, Gazprom has ambitious plans to develop the Shtokman field, a large natural gas field in the Barents Sea, and sell that fuel in American markets.
Two American energy companies, Chevron and ConocoPhillips, have been listed by Gazprom as possible partners in the Shtokman project, along with Total of France and Norsk Hydro and Statoil of Norway.
Gazprom has also reached an agreement with Sempra Energy of San Diego to import Russian natural gas to California and northern Mexico. Gazprom is believed to need the technical expertise and financial assistance of foreign partners to help develop the field.
Still, concerns in the United States about relying on imported natural gas from Russia are probably premature. The United States imports much of its natural gas from Canada by pipeline and is expected to increase tanker imports of the fuel soon from countries like Qatar, Egypt, Angola and Norway. Russia, despite the potential might of its natural gas reserves, is struggling to lift its energy industry to Western standards.
"Russia is reminding people that they're the powerhouse of natural gas resources, but it's a false promise," said Amy Myers Jaffe, associate director of the energy program at Rice University. "They don't have their sector organized enough."
The most immediate lesson of Russia's dispute with Ukraine may be that Russia and other natural gas producers are trying with varying degrees of success to raise the prices they charge for natural gas. This trend, which involves gas shipped by pipeline as well as in tankers, has to do with rising demand for the fuel in Britain, southern Europe, and the United States.
Until recently, the complexity and expense of cooling and condensing natural gas to a liquid in order to transport it in ships was an obstacle to the emergence of a vibrant market for liquefied natural gas. Signaling a shift in this market, though, a tanker of liquid gas from Trinidad and Tobago in the Caribbean, the closest supplier of the fuel to the United States, was rerouted to Britain last month after its producer received a more attractive bid for its cargo despite relatively high transportation costs.
Still, whether exporters transport their natural gas in tankers or pipelines, it has long proved difficult for gas-rich countries to exert lasting leverage over importing nations. In one example from the early 1980s, Algeria briefly cut off supplies to Italy over a pipeline in the Mediterranean Sea. That effort soon backfired on Algeria, however, costing it billions of dollars in lost export revenue.
"In the short term, natural gas suppliers might feel they have an enormous amount of leverage," said David Victor, director of the Program on Energy and Sustainable Development, at Stanford University. "In almost every instance, that position was a flawed obsession, revealing the gas producer to be an unreliable supplier."