Oil and gas pipeline conflicts

OIL AND GAS PIPELINE CONFLICTS

CASE STUDY: IRAN PAKISTAN GAS PIPELINE

PROJECT

Qarib KazmiCourse: Conflict Management

FOSSIL FUEL’S USAGE AND SCARCITY Fossil Fuels, oil, natural gas, and coal, are energy resources

that formed millions of years ago from plant and animal life Estimated to provide around 85% of the worlds total

energy demands Relatively inexpensive, which makes fuels for electricity,

heating, and transportation available to a greater amount of people

It takes around 300 million years to renew and is being consumed at an alarming rate

The world’s proven oil reserves of 1,383.2 billion barrels will last for only 46 years if oil production and consumption are to remain at current levels, according to BP Statistical Review of World Energy. The world’s natural gas reserves will also last for just 59 years if production is to continue at the 2010 rate.

HISTORY OF OIL/GAS PIPELINES

In 1865 a 6in diameter gravity (no pumps) oil line was built in Pennsylvania, USA, transporting 7000 barrels/day.

By the advent of WW I, crude oil pipelines were traversing much of the USA

The next big change in pipeline engineering was the building of long distance, large diameter pipelines

Pioneered in the USA in the 1940s due to the energy demands of the Second World War

As the world emerged from the Second World War it was able to build high pressure, long distance, oil and gas pipelines.

SOME HISTORY CONFLICTS IN WHICH OIL WAS USED AS A WEAPON

1967 Arab oil Embargo 1973 Oil crisis (OPEC oil Embargo) 1979 Energy Crisis

1967 ARAB OIL EMBARGO

June 6, 1967, one day after the beginning of the Six-Day war

Joint Arab decision to deter any countries from supporting Israel militarily

Several Middle Eastern countries limited their oil shipments

Not very effective due to lack of solidarity Ended on September 1 with the issuance

of the Khartoum Resolution

1973 OIL CRISIS (OPEC OIL EMBARGO)

October 1973, when OPEC proclaimed an oil embargo

Egypt and Syria, with the support of other Arab nations, launched a surprise attack on Israel

United States chose to re-supply Israel so OPEC decided to "punish" the United States.

Negotiation to arrange an Israeli pull back from the Sinai and the Golan Heights after the Arabs withdrew from Israeli territory.

1973 OIL CRISIS (OPEC OIL EMBARGO)

Embargo lifted in March 1974 after a negotiated settlement between Israel and Syria reached.

OPEC members used their leverage over the world price-setting mechanism for oil to stabilize their real incomes by raising world oil prices

The 1973 "oil price shock", along with the 1973-1974 stock market crash, had a persistent economic effect

1979 ENERGY CRISIS

Occurred in the wake of the Iranian Revolution. Protests disrupted the Iranian oil sector, with

production being greatly cut. Under the new regime, oil exports were

inconsistent which pushed prices up. In 1980, following Iran-Iraq war, oil production

in Iran nearly stopped, and Iraq's oil production was severely cut as well.

After 1980, oil prices began a 20-year decline down to a 60 percent price drop in the 1990.

OIL PRICE GRAPH

FUTURE PRICING PREDICTIONS

If Oil and gas prices continue to go up then the world energy scene can witness new players entering into the scene.

One example is Canada with its HUGE reserves of OIL sand reserves.

Natural bitumen reserves are estimated at 249.67 billion barrels globally, of which 176.8 billion barrels are in Canada, 42.009 billion barrels in Kazakhstan and 28.38 billion barrels in Russia.

PAST AND PRESENT GAS CONFLICTS

Russian-Ukraine gas dispute and European Gas crisis of 2009

Major GAS suppliers and Consumers

Syrian pipeline WAR

RUSSIAN-UKRAINE GAS DISPUTE AND EUROPEAN GAS CRISIS OF 2009

Conflicts between Ukrainian oil and gas company and Russian gas supplier Gazprom over natural gas supplies and debts

About 80% of natural gas going from Russia to Europe travels through pipelines across Ukraine which currently account for 25% of Europe requirements

Conflict in March 2005 over the price of natural gas supplied and the cost of transit

Conflict in 2008 over Ukrainian gas debts; resulted in supply disruptions in many European nations starting from 7th January, 2009

Gas supply restored on 21st January, 2009

EUROPE'S DEPENDENCE ON RUSSIAN GAS

MAJOR RUSSIAN GAS PIPELINES TO EUROPE

LIST OF COUNTRIES BY PROVEN RESERVES

LIST OF COUNTRIES BY GAS PRODUCTION

LIST OF COUNTRIES BY CONSUMPTION

SYRIAN PIPELINE WAR

The oil ministers of Iraq, Iran and Syria Monday 25 July 2011 signed a preliminary agreement for a $10 billion 1,500 kilometers natural-gas-pipeline deal, the official Iranian News Agency IRNA and other Iranian media reported.

Possible extension to Lebanon to reach Europe The pipeline would be essential to diversify Europe's

energy supplies away from Russia. An oil importer in the 1950s and 60s with little

production of its own, Syria became a net exporter of oil by the 1980s; it is now a country whose depleting reserves will lead to petroleum imports soon exceeding exports once again.

Source http://online.wsj.com/article/SB10001424053111903591104576467631289250392.htmlhttp://openoil.net/2012/03/28/syrias-transit-future-all-pipelines-lead-to-damascus/

THE COMPETING GAS PIPELINES

IPI TAPI NABUCCO South Stream Blue Stream

THE IRAN PAKISTAN GAS PIPELINE

Also known as the IP pipeline or the Peace pipeline, is a partially constructed pipeline to deliver natural gas from Iran to Pakistan.

An agreement signed in 1995; foresaw construction of a pipeline from South Pars gas field to Karachi in Pakistan.

Later Iran made a proposal to extend the pipeline from Pakistan into India; in February 1999, a preliminary agreement between Iran and India was signed

In April 2008 and August 2010,Iran invited China and Bangladesh to join the project respectively.

In 2009, India withdrew from the project over pricing and security issues, and after signing a civilian nuclear deal with the United States in 2008.


On 16 March 2010, Iran and Pakistan signed an agreement on the pipeline according to which, each country must complete its section by 2014

In July 2011, Iran announced that it has completed construction of its section.

In case Pakistan fails to fulfill its obligation, it will have to pay a daily penalty of $1 million to Iran until completion.

On 4 September 2012 the project was announced to commence before October 2012 and be completed by December 2014


The pipeline has diameter of 56 inches (1,400 mm)

It is expected to cost US$7.5 billion The pipeline will carry only 8.7 billion cubic

meters of gas per year and 40 billion cubic meters as a maximum capacity

Already the delay in the construction has caused much damage to Pakistan and now the gas will cost Pakistan $6 per million BTU more as compared to 2007.(http://www.brecorder.com/top-news/1-front-top-news/51923-ip-pipeline-project-pakistan-to-pay-6mmbtu-more-for-gas-price-.html)

IS TAPI AN OPTION FOR PAKISTAN

Turkmenistan's gas reserves are seriously overcommitted and would be unlikely to be sufficient to meet demand from China, TAPI, and the projected western route linking the TCP and Nabucco.

IS IT FEASIBLE???

A land-based pipeline would be four times cheaper than any other option.

IP is a direct from Iran as opposed to TAPI has Afghanistan in between.

The Government of Pakistan has determined that the natural gas from Iran would provide the cheapest fuel for power generation TAPI is $13 per million BTU IP is $ 11 per million BTU (in 2007 it was offered at $ 6) LNG from Qatar would cost $ 18 per million BTU

If China joins the project Pakistan stands to Receive $ 500 million in annual transit fees.

So what’s the conflict?Source http://www.brecorder.com/top-news/1-front-top-news/51923-ip-pipeline-project-pakistan-to-pay-6mmbtu-more-for-gas-price-.html

STAGE I : POTENTIAL OPPOSITION OR INCOMPATIBILITY

First and foremost, Washington views Iran as a major obstacle, indeed a threat, to the realization of its strategic objectives in the Middle East, especially the Persian Gulf region.

The control over the oil and gas resources of the Persian Gulf region is a major US strategic objective, the other being the security of Israel as an ally and an outpost of the West in the region.

In essence, Washington considers the Islamic Revolution as a threat to the US-friendly order in the Middle East.

IRAN’S NUCLEAR PROGRAM

Iran, while insisting on its right to carry out uranium enrichment under the Nuclear Non-Proliferation Treaty to which it is a party, has categorically stated that its nuclear program is peaceful in character and that it has no intention of developing nuclear weapons.

As of July 2012 Europe and Japan have stopped purchasing Iranian oil as part of the new round of UN sanctions on Iran.

IRAN SAUDI : SECTARIAN AND RELIGIOUS CONFLICT

Conflict between the two countries also played a pivotal role in the Iran–Iraq war when Saudi authorities pledged US$25 billion of aid to the Iraqi government of Saddam Hussein

1987 Hajj Incident. March 2007 visit of Ahmadinejad's to Saudia was

significant. During the coverage countries were referred by the press as "brotherly nations“.

In 2009, Saudi prince Faisal said in a press conference with Hillary Clinton that the "threat posed by Iran demanded a more immediate solution than sanctions." A statement condemned by Iranian officials.

IRAN QATAR RELATIONSECONOMIC CONFLICT

Mostly Cordial Iran Qatar Share the south

Pars Gas Field. Its 20% of all proven GAS reserves in the world. 51 trillion Cubic Meters.

Its 99% of all GAS reserves of Qatar and 38% of Iran’s proven reserves.

INDIA’S MISTRUST ON PAKISTANMILITARY CONFLICT

India was initially actively involved in the GAS pipeline project but backed out due to US pressure and Mumbai Attacks in 2008.

Further more it was reluctant to Hand over its energy future to Pakistan by committing to this project. India BTW will have to pay a royalty fee to Pakistan as Transit Fee if it joins the project.

India’s needs at the moment are not that pressing as Pakistan's.

STAGE II : COGNITION AND PERSONALIZATION PERCEIVED CONFLICT

Saudi Arabia feels a severe threat from Iran, although Iran has never talked of attacking any Muslim country.

US conflict with Iran can be considered as perceived conflict as it is based on the assumption that Iran is pursuing nuclear ambitions, which would in turn destabilize the whole of middle east.

STAGE II : COGNITION AND PERSONALIZATION FELT CONFLICT

NABUCCO vs Russian South Stream. The South stream is very expensive to build (Euros 15.5

Billion) Mainly used by Russia to detract The Nabucco is plagued with resourcing issues.

Supplier : Azerbaijan Turkmenistan? Iraq? Egypt Iran? Russia?

PROSPECTIVE SUPPLIERS TO NABUCCO

http://en.wikipedia.org/wiki/Nabucco_pipeline

STAGE III : INTENTIONS

Saudi Arabia is behind the scenes opposing the pipeline. Offered a bail out plan for energy shortage and Credit line to stop pakistan form proceeding.(Source http://dawn.com/2012/04/15/iran-gas-pipeline-saudi-offer/)

America has said it on many occasions that it is against this pipeline, but has done little to provide viable alternatives and help for the energy starved Pakistan.

Pakistan has until now successfully resisted the pressure and is going ahead with the pipeline project, but is finding it hard to obtain funding for the project.

Iran has completed its part of the pipeline and is very keen on making this project a reality. It has offered a $500 million credit line to Pakistan for the project. Iran has also re-invited India to join the project

STAGE III : INTENTIONS

Israel is Backing the TAPI which according to some sources is owned by Israeli MEHRAV company (http://afghanistantapipipeline.blogspot.com/2012/05/tapi-afghan-connection.html)

Turkmenistan is the key supplier for the TAPI project but Pakistan and India still don’t trust them and their claims for providing the GAS that they claim. India and Pakistan have demanded an independent audit of the Turkmenistan GAS reserve claims.(https://www.cimicweb.org/Documents/CFC%20AFG%20Social%20Well-being%20Archive/CFC_Afghanistan_TAPI_Feb12.pdf)

India is still playing the waiting game on the IP pipeline. Although both Pakistan and Iran have still left doors open for India.(http://tribune.com.pk/story/427544/ipi-pipeline-iran-may-ask-india-to-push-ahead/)

China in the mean time has built OIL and GAS pipelines from Turkmenistan, the Central Asian Gas Pipeline.

Russia is not causing any hindrances to the project as this project helps its goals of delaying work on NABUCCO pipeline which competes with the Russian South Stream. GAZPROM was in a

Europe's big choice NABUCCO or South Stream.(http://arirusila.cafebabel.com/en/post/2009/05/15/EU%E2%80%99s-big-choice-%E2%80%93-Nabucco-or-South-Stream)

STAGE IV: BEHAVIORSSAUDI

According to Le Figaro, on June 5, 2010, King Abdullah of Saudi Arabia told Hervé Morin, the Defense Minister of France that: "There are two countries in the world that do not deserve to exist: Iran and Israel.

In 2012, in response to the global sanctions against Iran, Saudi Arabia offered to offset the lost Iranian oil sales and Iran warned against this

STAGE IV: BEHAVIORSAMERICA

U.S. Secretary of State Hillary Clinton has threatened Pakistan with sanctions if the country continues with plans to build a natural gas pipeline to Iran.

On 10th December 2012 Richard Olson during his visit to the Quaid’s mausoleum, US ambassador talking to media said that US has reservations on Pak-Iran gas pipeline project and at the same time extended his country’s cooperation in Pakistan energy sector.

STAGE IV: BEHAVIORSRUSSIA

Russia has been pushing hard at the South Stream project which is in direct competition with the NABUCCO.

But Interestingly it has also proposed another pipeline the Blue Stream that can also be one of the suppliers to NUBUCCO.

Along with this it is also trying to coax the central Asian states Tajikistan, Uzbekistan and Kazakhstan to send their Oil and GAS north as opposed to south to fill up the existing Russian gas pipeline structure.

The NORD stream is another of its proposals to bypass Ukraine and supply gas directly to Germany.

STAGE IV: BEHAVIORSCHINA

On December 14, 2009, China and Turkmenistan formally opened the longest natural gas pipeline, which runs from Turkmenistan through Central Asia to China 7000 km.

Initially Turkmenistan will be the only supplier of gas through this pipeline, by 2011 Uzbekistan and Kazakhstan will open up the second line, which is also 1833 km long, and will enable China to get gas from all three Central Asian producers.

China's total Turkmen gas imports in August stood at an average of 2 Bcf/day, up 52.7% year on year. This brings China's total pipeline imports for the month to 2.02 Bcf/day, up 54.2% year on year.

The Turkmenistan-China pipeline was negotiated, signed and built within three years.

STAGE IV BEHAVIORS:PAKISTAN

Pakistan, Iran likely to sign pact on gas pipeline as of 7 December 2012.

“During the upcoming visit of the President, all matters relating to the project would be finalized,” Pakistan’s Frontier Works Organization along with an Iranian company are like to complete the project.

Sources said that Pakistani and Iranian teams have finalized the draft of the Inter-Governmental Cooperation Agreement (IGCA).

STAGE IV : BEHAVIORSPAKISTAN, THE BALUCHISTAN ISSUE

Now seemingly the IP firmly in place, the strategic spotlight focuses even more on Baluchistan.

The port of Gwadar, in southwest Balochistan, near the Iranian border, is indeed bound to become a new Dubai, but will it be US version of Dubai or Chinese, only time will tell.

This all raises the crucial question: how will Islamabad deal with ultra-strategic Baluchistan.

Gwadar - a port built by China - is the absolute key. It is the essential node in the crucial, ongoing, and still virtual Pipelineistan war between IPI and TAPI.

STAGE V OUTCOMESEFFECT OF THE IRANIAN OIL EMBARGO

Get ready for higher oil prices. Due to shortage of Iranian OIL in the market. “One can say, of course, that the deficit will be covered, but (some) refineries are geared specifically to Iranian oil ... and readjusting them will demand substantial investments that the EU can hardly afford now,

THE STRAIT OF HORMUZ

In 2011, total world oil production amounted to approximately 87 million barrels per day (bbl/d), and over one-half was moved by tankers on fixed maritime routes.

The Hormuz strait is the busiest chokepoint and 17 million Barrels per day pass through it.

The international energy market is dependent upon reliable transport. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs

GEOGRAPHICALLY

MAJOR OIL SUPPLIERS

Rank Country/Region

Oil - consumption

(bbl/day)

Date ofinformation

- World 93,250,000 2010 est.

1 United States 19,150,000 2010 est.

- European Union 13,680,000 2010 est.

2 China 9,400,000 2011 est.

3 Japan 4,452,000 2010 est.

4 India 3,182,000 2010 est.

5 Saudi Arabia 2,643,000 2010 est.

6 Germany 2,495,000 2010 est.

7 Canada 2,209,000 2010 est.

8 Russia 2,199,000 2010 est.

9 Korea, South 2,195,000 2011 est.

10 Mexico 2,073,000 2010 est.

MAJOR OIL CONSUMERS

Rank CountryProduction(bbl/day)

Share of World %

Date of Info

— World 87,500,000 100% 2011

— OPEC 33,327,700 38.08%2009-2011

— Arab League 24,171,503 29.71% 2009

1 Russia 10,540,000 12.01% 2011

2 Saudi Arabia 10,270,000 10.06% 2011

3 United States

9,688,000 8.91% 2011

4 Iran 4,252,000 4.77% 2010

5 China 4,073,000 4.56% 2011

6 Canada 3,483,000 3.90% 2010

7 Iraq 3,100,000 3.75% 2011

8 Mexico 2,983,000 3.56% 2010

9 United Arab Emirates

2,813,000 3.32% 2009

10 Brazil 2,572,000 3.05% 2009

NEGOTIATIONS AND STRATEGIES

India Bargained for a Civil Nuclear Technology transfer deal. But India now feels that it has not done good for itself by opting out of the IPI.

America is Offering Pakistan TAPI which is Unrealistic and Hydal project support which is un reasonably LOW.

Saudi Arabia offered Pakistan a soft loan and OIL credit. Outright pressure of America and US and NATO backed UN

sanctions on Iran and on any company that deals with Iran. Iran’s counter offer of providing Pakistan a credit line of

$500 million to build its side of the pipeline. Pakistan was expected to seal the deal on this with Iran on

7th December 2012. As of today Pakistan has unexpectedly cancelled its trip to Tehran for signing of the deal.

POSSIBLE SOLUTIONS AND RECOMMENDATIONS

International Lobbying. The Non Aligned Nations Conference in Iran.

Involving Nations like Russia, China to finance and own stakes in the project.

Govt of Pakistan can raise funds itself by employing some development fund charges.

Better leadership and Equal’s level talks with America on this and other issues.

Role of media in forming public backing is very vital.