Alternative gas supply sources for Europe: potential and challenges

The world has 187.3 trillion cubic meters of proved natural gas reserves. The most part these reserves are found in the Middle East region, whose share of total global reserves amounted to 43 percent by the end of 2012, according to BP's data.

There are many countries in the world with enormous natural gas resources and with a big potential to export these resources helping to meet energy needs of numerous nations. However, export capacities for the most part is either limited or hindered for various reasons, including political instability, lack of infrastructure, as well as the inability to develop these resources.

Today Europe appears as one of the most attractive markets for gas producing countries. Its attractiveness consists not only in stable demand for import, availability of required infrastructure, but also in favorable terms that Europe offers to investors.

In spite of its attractiveness as a market Europe faces a problem regarding finding new sources of supply and lessening its dependence on Russia. For the time being Azerbaijan is the only country able to provide alternative gas supplies to Europe. But it needs much more volumes than 10 billion cubic meters that Azerbaijan is ready to give. There are however several countries which potentially could serve as alternative supply sources for Europe. Let's analyze these countries' potential to play this role as well as the challenges on their way to transport gas to Europe.

Turkmenistan

Turkmenistan holds the fourth biggest gas reserves in the world after Iran, Russia and Qatar. In early 2013 the country's proved natural gas reserves amounted to 17.5 trillion cubic meters, which was a 9.3 percent share of total world reserves, according to BP.

Turkmenistan produced some 64.4 billion cubic meters of gas in 2012 compared to 59.5 billion cubic meters of gas in 2011, which is 7.8 percent more than in 2011. Turkmenistan's share of global natural gas production was 1.9 percent. Gas consumption in the country totaled 23.3 billion cubic meters in 2012, which is 7.1 percent more than the previous year.

At present Turkmenistan exports its gas to Russia, China and Iran. At the same time the country is interested in European in order to diversify its gas export routes. An access for Turkmen gas to the European markets can be provided by the construction of the Trans-Caspian pipeline, which will run through the Caspian Sea between Turkmenistan and Azerbaijan and can be a part of the Southern Corridor project.

Azerbaijan has already expressed readiness to provide its own territory, transit opportunities and infrastructure for the Trans-Caspian project.

Nevertheless, the implementation of this project faces some difficulties, including the opposition from Russia and Iran. Some experts believe that the unresolved status of the Caspian Sea will remain an obstacle on the way of this project implementation.

The potential source for the Trans-Caspian pipeline may be the gas produced at the Galkinish field - Turkmenistan's largest gas field.

The chances of this project may also be lowered by possible increase of supplies of Turkmen gas to China, which earlier stated that it was ready to purchase all volumes produced in Turkmenistan, as well as the possible implementation of TAPI (Turkmenistan-Afghanistan-Pakistan- India gas pipeline.

In spite of all challenges on the way of Trans-Caspian pipeline's construction, this project with Turkmenistan as the main source for it still remains one of the most real and perspective alternative way for Europe to diversify its gas supplies.

Kazakhstan

Kazakhstan's proved natural gas reserves amounted to 1.3 trillion cubic meters in early 2013, according to BP. In 2012 the country produced 19.7 billion cubic meters of gas (two percent more than in 2011) while consumed 9.5 billion cubic meters.

Most natural gas production in Kazakhstan has been associated with the development of oil

fields, and most of the natural gas has been re-injected into the fields. In 2009, Kazakhstan started to export its gas. In 2012 Kazakhstan exported 11 billion cubic meters of gas to Russia.

In 2011 the European Union invited Kazakhstan to take part in the Trans-Caspian gas pipeline project. The gas from offshore Kashagan field and associated gas from the onshore Tengiz oilfield could potentially be candidates for exports to Europe.

Iraq

Iraq holds proved natural gas reserves at 3.6 trillion cubic meters. Over 60 percent of these reserves lie in the south of Iraq. Three-fourths of Iraq's natural gas resources are associated with oil. The majority of non-associated reserves are concentrated in several fields in the North, including Ajil, Bai Hassan, Jambur, Chemchemal, Kor Mor, Khashem al-Ahmar, and al-Mansuriyah.

While holding such huge gas resources, the majority of Iraqi natural gas production is flared. Iraq was the fourth largest natural gas flaring country in the world in 2010, according to the Energy Information Administration (EIA). Iraq is taking steps to reduce flaring and to use its natural gas resources in power generation and for re-injection to increase oil recovery.

The gas production in the country amounted to 0.8 billion cubic meters in 2012, according to BP.

Plans to export natural gas remain controversial because natural gas is needed as a feedstock for Iraq's electric power plants. The current shortage of adequate gas feedstock has resulted in idle and sub-optimally-fired electricity generation capacity in Iraq, the EIA said in its analysis.

In July 2009, Prime Minister Nouri al-Maliki suggested that Iraq could export 530 billion cubic feet per year to Europe by 2015.

In July, 2013 it was announced that Tehran has reached agreement with Damascus and Baghdad to form a troika to export gas to Europe. The plan of three countries envisaged the construction of a pipeline dubbed "friendship", which will connect Iranian port city of Assaluyeh to south of Iraq and Syria. In case of construction, the proposed pipeline would have the capacity to transfer 110 million cubic meters of gas.

However, Iraq's export plans have been complicated by the Kurdistan Regional Government's proposals to export their natural gas independently of Baghdad, the EIA said.

Egypt

Egypt is also among the countries which are considered as potential gas suppliers to the European markets in the future. Egypt's proved natural gas reserves are estimated at two trillion cubic meters. The country produced 60.9 billion cubic meters of gas and consumed 52.6 billion cubic meters in 2012. Egypt's natural gas production is used to satisfy rising domestic demand, exports through the Arab Gas Pipeline, and LNG exports.

Egypt has two liquefied natural gas plants and a gas export pipeline, but industry sources say the government has diverted some gas contracted for export to meet the growing demands of the domestic market.

Egypt exports natural gas via pipeline and in the form of liquefied natural gas. Pipeline natural gas exports have been substantially cut because of sabotage attacks on the Arab Gas Pipeline, which connects to Jordan, Syria, and Lebanon.

Iran

Iran owns the world's second largest natural gas reserves after Russia, but the vast majority of these reserves are undeveloped. The country's proved natural gas reserves amounts to 33.6 trillion cubic meters - 18 percent of total world gas reserves. In 2012 the country produced 160.5 billion cubic meters and consumed 156.1 billion cubic meters of gas.

Iran exports natural gas to Turkey, Azerbaijan and Armenia, and receives pipeline imports from Turkmenistan and Azerbaijan.

Iran has big pans regarding getting an access for its huge resources to the world markets, including European market. However these plans are hampered by international sanctions.

Lack of foreign investment and sufficient financing has resulted in slow growth in Iran's natural gas production, EIA stressed in its report. According to some analysts, Iran should have become one of world's leading natural gas producers and exporters given its large resource base. Development of its fields has been hampered by a combination of financing, technical, and contractual issues.

Nonetheless, Iran's natural gas production has grown and likely will continue to increase in coming years, EIA believes. FACTS Global Energy (FGE) predicted that Iran's gross natural gas production will increase to 10.9 trillion cubic feet in 2020, but that growth will depend on the pace of development of the giant South Pars field.


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