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Title: What governments need to know about cross-border gas projects
Category: Technical papers from the Journal of Pipeline Engineering
Downloadable: Yes 
Project No.:
Research Agency:
Catalog No.: 2107s
Date of Publication: June, 2007
Price: $25.00 US
Authors: Robert Pritchard
Abstract: Governments, especially politicians, just do not get it: gas markets are not commodity markets like oil markets. If gas markets are to work, they require proactive facilitation by governments in collaboration with investors. A study on cross-border gas projects carried out in 2004 for the APEC Energy Working Group identified a lack of shared vision amongst gas exporting and importing economies as a major barrier1, and this is very much in evidence today.

An anticipated doubling of the global gas market every 25 years, combined with a disparity in the locations of demand and supply, will continue to underpin cross-border gas trade. The main cause of this is that natural gas is continuing to increase in importance as a fuel in power generation, where it is becoming more cost-competitive with coal. As well, natural gas offers speedier construction times for new-build generating capacity. Most importantly, however, natural gas produces lower carbon dioxide emissions than coal does in power generation.

The supply of natural gas is, however, failing to keep up with demand, despite the abundance of natural gas globally2. Much of the gas is “stranded” because it is isolated from markets3; new cross-border gas projects to bring stranded gas to markets continue to languish because they require pre-committed off-take support, as well as supportive policy and regulatory frameworks, to speed-up both upstream development and downstream market creation.

It is not a little ironic, in an era of increasing anxiety about the risk of disruption to oil supplies from the Middle East, that resource nationalism in relation to natural gas supply has manifested itself not in any Middle Eastern economy but in Russia, Indonesia, and the Australian State of Western Australia.

In Russia, the monopoly of Gazprom as the sole agency for export of Russian natural gas continues to be problematic. In Indonesia, many shipments of LNG have been cancelled in order not to curtail domestic fertilizer production. In Western Australia, the State Premier has announced a unilateral requirement that 15% of offshore gas reserves (which it does not even own) must be reserved for domestic consumption4. These actions throw doubt on the reliability of supply from all three economies if another energy crisis develops but, of more immediate concern, they serve to impede investment decisions in cross-border gas projects.

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