The story of gas (2)
by
MARIA BEAT*

For example, Turkish electric energy production consumes 70 percent of natural gas imported from Russia, while more than 60 percent of Turkey’s required natural gas comes from Russia. The situation may have been less dramatic if the price of natural gas had remained stable, which is not, unfortunately, the case: Some nine years ago Turkey paid less than $150 per thousand cubic meters of gas, and by the end of 2008 the price had reached more than $400. It’s true that the ongoing economic crisis made Russia reduce its gas price for Europe from $409 in December 2008 to $258 in March 2009, which is quite a difference. Nevertheless, chances are high that the gas price increase will resume as soon as the world economy revives and the price of oil starts going up.

As well, with the crisis over, countries of geopolitical and geo-economic value for the international economy will start playing a leading role in world affairs. As such, the Caspian and Central Asian economies have the potential to attract the attention of regional and global players.

As long as no alternative fuel to natural gas is discovered, gas producers may sleep well: No meaningful reduction of gas exports or pricing can be expected. The recovered European economy will continue to increasingly demand oil and gas for its very survival, while the full-fledged replacement of them with alternative renewable energy resources or nuclear power is hardly feasible in the middle-term perspective.

Since it’ will most probably remain the case, Russia, as their leading supplier to the world markets, will intensify its economic and political pressure by means of developing its own export routes for energy resources. Russian energy strategy for the period until 2020 specifies that the “global nature of energy issues and their increasingly political dimension combined with the leading position of Russia’s oil and gas sector in the world economy have made the energy factor a prime element of Russian diplomacy.” Thus, it’s reasonable to expect Russian foreign policy to resort to the energy factor to supplement diplomacy, while lobbying for the interests of its major oil and gas corporations.

The natural gas market advance was breathtakingly fast and -- as many other brave and successful ventures -- took its start from the US. It was in the beginning of the 1950s when the tremendous value of natural gas for the rapidly developing US economy was recognized to immediately trigger a boost in the construction of gas pipelines, since unlike other commodities natural gas could be exported to its consumer by a pipeline. The newly discovered product demand jumped so high that some oil pipelines under construction were rapidly redesigned for gas transportation.

Of course, Europe followed suit to find itself very soon a natural gas addict heavily dependent on gas imports. As time went on, it became apparent that the number of its domestic gas suppliers was limited to Great Britain and the Netherlands. With its gas demand continuously going up and domestic gas supplies on the decline, Europe became increasingly concerned about access to additional import reserves and security of its gas supply.

By 2027, EU’s gas demand is expected to reach 730 billion cubic meters with import shares rising from 40 percent up to 70 percent. The security of its supply largely depends upon the transit countries whose territories regional pipelines traverse from the East to the West.

Back in the 1970s, the Soviet Union joined the gas club as a natural gas supplier to world markets, and Russia today provides more than 30 percent of EU gas consumption. One may recall that the process took its start at the time of the Cold War years with the Berlin Wall freshly built and the Cuban Missile Crisis aftermath still in the air. Still and regardless of bitter ideological confrontations that continued until the mid-1980s, pragmatism and reason prevailed, and Soviet Russia started its promising advance of becoming a natural gas supplier to world markets.