Author: Tronserve admin
Thursday 29th July 2021 11:12 PM
Freedom Gas: Geopolitics Enter the Gas Market
A second crisis, the so-called ‘first oil crisis’, was the result of a boycott of oil transportation to Western countries by OPEC. In 1979, a new oil crisis was triggered by the Islamic Revolution in Iran. And a possible new oil crisis has just started, after the deadly attack of the US on an Iranian general, which has caused new geopolitical tensions. All these crises resulted in higher oil prices, with negative consequences for oil-importing countries. In the past, this triggered a successful search for new oil fields in the US and Europe.
The gas market was for a long time, primarily a regional ‘game’ which was dominated by local players. The last fifteen years, however, shows that tensions are also rising here, particularly about renewing gas transport contracts between Russia and Ukraine. This has sometimes led to disruptions in the transit of gas from Russia to Eastern Europe. European gas demand will increase further in the coming years due to the closure of coal and nuclear power stations and the drop in European gas production.
Extra import capacity is needed to meet this increased demand. This capacity is being built in the form of liquefied natural gas (LNG) import terminals and an expansion of the pipeline capacity for gas from Russia: Nordstream 2 and Turkstream (a pipeline through Turkey). Both pipelines are expected to be ready this year. However, they are controversial because they could lead to less dependence on gas transit through Ukraine. At present, Ukraine gas accounts for about 80 per cent of gas imports to Europe. The alternative gas pipelines would, at the same time, further increase our dependence on Russia.
With LNG as an alternative to pipeline gas, the geopolitical dimension has become increasingly pronounced in the gas market. The regional players are suddenly confronted with players and developments on the world market. The demand for gas from Asia and the supply of gas from the United States are suddenly factors that are important in the pricing of gas in Europe. On 20 December, we saw a new geopolitical development in the gas market.
President Trump signed a law imposing sanctions on companies working on the construction of Nordstream 2. The US is trying to “limit the European dependence on Russian gas, and thereby limit Russia’s influence on European policies.” The US does come up with an alternative: “Freedom gas” – or LNG from the US. From a European perspective, the name choice was unfortunate for several reasons.
It also does not affect the absolute dependency on gas. However, there is a big difference between gas from Russia and gas from the US.
The gas from Russia cannot go quickly to other consumers – such as China – as long as there is no pipeline capacity. In contrast, LNG from the US is much more flexible and will go to Asia as soon as the price of gas there is a fraction higher than in Europe. Freedom gas may, therefore, mean a little too much freedom from the European point of view of security of supply.