In the near future, the world will need more cross-border pipelines for oil and gas. Two factors explain the reasons for this need:
- Reserves close to traditional markets are being depleted. Newer, more remote sources of oil and gas will be required. Many of these will require pipeline delivery either because they are landlocked or, in the case of gas, because liquefied natural gas (LNG) projects are less attractive than pipelines, other than for distances in excess of 3,000km.
- Many gas markets have in the past been constrained by regulatory and institutional factors. In recent years these constraints have been eroded. A potential dash for gas furthermore is being reinforced in many areas by a combination of gas sector reform, creating gas-to-gas competition; electricity sector reform, leading to strong demand for combined-cycle gas turbine (CCGT) generation; and concerns about the environmental damage caused by the consumption of other hydrocarbons.
The problem is that cross-border oil and gas pipelines have a history of vulnerability to disruption and of generating conflict. While it is true that most operating pipelines have avoided such problems, the minority that has such a history has cast a much greater shadow than their actual numbers might justify. This negative perception inhibits both the operation of existing lines and the building of new ones. In particular, the risks perceived as inherent in cross-border pipelines may increase the cost of finance.
In addition to threatening the viability of projects, higher financing costs also seriously impact the delivered cost of the fuel. This is especially true for gas, for which the only viable alternative is LNG; despite some improvements, conversion to LNG remains a costly option and may deliver too much gas for many markets to absorb.
All this has serious consequences for the producers and consumers of oil and gas at both ends of the line.
Cross-border pipelines have three relevant dimensions: they involve the use of pipelines, the use of cross-border trade, and they may involve the use of transit. Each has certain innate characteristics that lead to consequences. Various combinations of these consequences lead to three results that in turn create conflict or the potential for conflict (although many of these consequences would exist in many commercial transactions). These are different parties, each with different interests, are involved.
The context created by the characteristics invites conflict because profit and rent are to be shared between the various parties and mechanisms exist to encourage one or other party to seek a greater share of that profit and rent.
During the course of this analysis, it will be important in many instances to differentiate between oil and gas pipelines since the characteristics, consequences, and results often differ. The main differentiating factors between oil and gas are as follows:
- There is normally much greater rent associated with oil than with gas.
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- Security of supply is more important for gas than for oil, because gas outages involve much greater reconnection problems.
- Gas pipeline transportation involves very different technical issues from those of oil, for example, in terms of issues such as grid balancing.
- The environmental threats from oil and gas pipelines differ significantly.
- The extent of competition, in terms of transport methods, differs.
Vocabulary
cross-border [krɒsˈbɔːdə] , ,
deplete [dɪˈpliːt] ,
remote [rɪˈməʊt]
source [sɔːs]
require [rɪˈkwaɪə]
delivery [dɪˈlɪvərɪ]
landlocked [ˈlændlɔkt] ;
excess [ɪkˈses]
constrain [kənˈstreɪn] , ;
reinforce [ˌriːɪnˈfɔːs] ,
combined-cyclegas turbine [kəmˈbaɪndˈsaɪklgæs ˈtəːbaɪn]
environmental [ɪnvaɪərnˈmentl]
damage [ˈdæmɪdʒ] ,
cause [kɔːz] ,
consumption [kənˈsʌmpʃən]
vulnerability [ˌvʌlnərəˈbɪlɪtɪ] ;
disruption [dɪsˈrʌpʃən]
minority [maɪˈnɔrɪtɪ]
shadow [shadow] ,
justify [ˈdʒʌstɪfaɪ]
perception [pəˈsepʃən] ,
perceive [pəˈsiːv] , ,
threatening [ˈθretnɪŋ]
viability [vaɪəˈbɪlɪtɪ]
outage [ˈautɪdʒ] ; ;
erode [ɪˈrəud]
innate [ɪˈneɪt] , ,
Comprehension task
