Back in 1996, an official from the Paris-based International Energy Agency gave a presentation at an Abu Dhabi conference on cross-border pipelines in the Middle East. It made depressing listening. After detailing the seven transnational pipelines in existence at the time, the official went on to note that just two - the Abu Safah line running from the offshore Saudi Arabian oil field to Bahrain and the Bukha line linking the Omani gas field to Ras al-Khaimah - were in operation.
Cross-border pipelines have had a rough ride in the Middle East. Israel's establishment in 1948 sounded the deathknell for Tapline, the crude pipeline running from Saudi Arabia to Haifa, and the Haifa line, connecting Iraq's Kirkuk field to the Mediterranean port city. In the late 1970s, a war of words between the Baathist regimes in Baghdad and Damascus resulted in the closure of the Banias oil pipeline. And the imposition of UN sanctions on Baghdad in 1991 saw Iraq's other two export pipelines closed - IPSA through Saudi Arabia and the Kirkuk-Ceyhan line to Turkey.
The experiences have inevitably cast a long shadow over the raft of gas pipeline schemes announced since the mid 1990s. Promoters, particularly in the Gulf, have had to work overtime to convince a sceptical audience that their projects are not only technically and commercially viable, but also politically feasible. All the effort is now beginning to pay off. For with plans to export Qatari gas to the UAE and Kuwait at an advanced stage and bidding under way on the Libya/Italy and Egypt/Jordan transmission systems, 2002 could well turn out to be the year of the Middle East gas pipeline.
That is certainly the belief at Qatar Petroleum (QP), the Gulf's leading gas pipeline proponent. 'I think the market is now ready,' says Nasser Jaidah, director of QP's oil & gas ventures directorate. 'There is a strong recognition that this is the way forward to meet the region's energy and electricity needs.'
Qatar's plans to export gas by pipeline to regional states are founded on strong commercial grounds. On the one hand, Doha has access to low cost and abundant non-associated gas reserves in the form of the offshore North field. It has also built up over the past decade a strong track record in implementing major gas projects in its liquefied natural gas (LNG) sector. On the other, both the UAE and Kuwait are having to meet double-digit growth in gas demand, fuelled by increasing reinjection requirements from their oil sectors and the need for additional power-generating capacity.
The UAE and Kuwait are hardly short of gas, having the third and sixth-largest reserves, respectively, in the Middle East. Nevertheless, there are limits to how much new capacity can be developed. Nearly all of the gas is associated, meaning that increased gas capacity can only come about through higher oil production, which is already constrained by OPEC quotas. Moreover, in Abu Dhabi's case, expanding gas capacity can be expensive. Much of its gas is sour, resulting in development costs in some cases exceeding $2.5 per million BTUs.
The commercial case for purchasing Qatari gas does not just revolve around the fact that the imported volumes will work out cheaper than developing existing reserves in the UAE and Kuwait. An equally significant point is that the North field gas will free up existing production in the two states. In Kuwait, the gas is earmarked for power generation, which at present consumes about 85,000 barrels a day of fuel oil. It is a similar story in Abu Dhabi. Dolphin gas will replace gas feedstock for power generation, presently supplied by Abu Dhabi National Oil Company (ADNOC) and its subsidiaries. Its arrival will in effect mean that an estimated 1,000 million cubic feet a day of gas will be released, which can be reallocated for oil field reinjection, thus enhancing the emirate's production capabilities.
The strong economic arguments have helped to push aside political issues. The message coming out loud and clear from QP and Abu Dhabi's Dolphin Energy (DEL) is that the two pipeline projects are first and foremost commercial undertakings. Cementing bilateral political relations will be a bonus. 'We are trying to make all our pipeline deals commercial without having a political flavour,' says QP's Jaidah.
At QP, the proposed Kuwait and Dolphin pipelines are viewed as only the start. With one pipeline running north and the other south, the backbone of a gas grid will be put in place. That will allow other gas-hungry states in the GCC, such as Bahrain and even Saudi Arabia, to be connected to the network by spur lines at a relatively low cost.
Qatar will not be the first Gulf state to export gas to its neighbours, however. That accolade belongs to Iran, which after having supplied gas to the Soviet Union in the 1970s, resumed exports in late 2001, when a 48-inch pipeline running from Tabriz to Ankara was opened. This year, some 4,000 million cubic metres are expected to pass through the pipeline, rising to 10,000 million cubic metres by 2007.
Having spent much of the past 20 years developing its domestic grid, the Iranian gas trunkline network (IGAT), Tehran is now looking to expand its export business. Oil Minister Bijan Namdar Zanganeh visited Athens in January to discuss the possibility of supplying gas to Greece. Exports to Greece via Turkey would significantly enhance Iran's position to break into the expanding European market. However, political hurdles will first have to be overcome given that a link needs to be established between Turkey and its arch-foe, Greece.
Geopolitics are also hampering Tehran's ambitions eastwards, where it is looking to supply gas to India. One option being studied is the construction of an overland pipeline via Pakistan. The route is considered the most feasible, but India is reluctant to put control of a gas pipeline in the hands of Islamabad for security reasons.
An alternative route, avoiding Pakistani territory, is being examined by an Italian joint venture of Saipem and Snamprogetti. The team is studying a 2,000-kilometre offshore pipeline, which will run from Bandar Assaluyeh to the Indian state of Gujarat at depths of up to 3,000 metres below sea level and avoiding Pakistani territorial waters.
'The immediate prospects for the pipeline may not be great, but if a strong enough economic argument can be made, a pipeline providing both Pakistan and India with gas may be possible at some stage,' says a European gas consultant. 'The bottom line is that both countries need gas.'
Iran's ambitions to be a Caspian hub are also under threat from politics, especially since the US administration singled out the Islamic republic to be one of three countries forming an 'axis of evil'. This could - conceivably - pave the way for new pipeline routes from the Caspian through Afghanistan and Pakistan. The Afghan route for exporting gas from Turkmenistan was actively canvassed by a US-led group and a rival Argentinian venture during the Taliban era, but little came of it other than law suits between the competing parties. Prospects for the success of this risky undertaking in the post-Taliban era still do not appear very promising.
The one part of the MENA region with a proven track record of piping gas across borders is North Africa. Close proximity to Europe has enabled Algeria to become one of the continent's leading gas suppliers. Subsea pipelines to Spain and Italy now carry about 60 per cent of Algeria's 62,000 million cubic metres a year (cm/y) of gas exports, and account for around one-quarter of the EU's total gas imports. The figure looks set to rise in coming years, as Algeria seeks to fill the supply gap left by declining EU gas production and surging European gas demand.
Southern European gas demand has been rising strongly in recent years, driven by the conversion of oil-fired power stations to gas and higher electricity and air-conditioning consumption. In Spain, gas demand doubled to 17,000 million cm/y in the five years up to 2000; in Italy, demand grew by 28 per cent to 64,000 million cm/y over the period. Further demand increases are expected with liberalisation of the European gas market, which should pave the way for the creation of a liquid market responsive to spot gas prices.
European gas liberalisation is a double-edged sword for Algiers. Its insistence on a 'destination clause', which forbids the resale of Algerian gas by a European offtaker tied into a long-term take-or-pay contract, flies in the face of the EU single market, Brussels says. The Algerian proposal that it should benefit from profit-sharing schemes if the resale is allowed has not been warmly received by the EU.
Nevertheless, Algeria is optimistic that liberalisation in its primary market will, on balance, further boost the profile of the country's gas industry, which in 2000 accounted for 65 per cent of overall hydrocarbons production. Plans are under way to expand gas exports by 40 per cent to 85,000 million cm/y before 2005 to meet the envisaged rise in demand. Spare capacity in the two existing subsea gas pipelines offers Algeria some room to manoeuvre, but if the country is to reap the full rewards of its pre-eminent position, further export facilities will have to be built.
Feasibility studies are ongoing into two new subsea pipelines, which will run directly to Spain and Italy unlike the existing Maghreb-Europe Gasline and Transmed pipeline, which pass through Morocco and Tunisia respectively.
Whatever the outcome of the studies, the pipeline connection between Italy and North Africa will be strengthened in 2004/05 with the scheduled completion of the 540-kilometre Greenstream gas export pipeline from Melitah in Libya to Gela in Sicily. The main onshore processing plant contract has been recently awarded and the client, Agip Gas, a joint venture between Eni and National Oil Corporation, is preparing to let this year the remaining packages, including the $1,000 million subsea pipeline.
Ten years ago, Greenstream would have been unthinkable due to Tripoli's volatile relationship with its former colonial power. However, rising gas demand in Europe and Tripoli's ability to meet it have driven the $4,500 million project forward. The hope is that the same combination of demand and supply will apply elsewhere in the region and usher in a new chapter in regional co-operation.