Agnia Grigas - The New Geopolitics of Natural Gas

Are we entering the golden age of gas? Are we on the edge of a truly global gas market? Are we breaking Russias natural-gas chokehold? Or are low oil [and gas] prices killing the US shale boom? Headlines like these have been spinning every bullish and bearish story on natural gas since the early 2010s, when it became increasingly evident that something extraordinary was taking place as a result of Americas shale gas boom and that the long-awaited global gas market could finally be on the horizon. Newfound abundant resources, new producer states, the growth of trade in liquefied natural gas (LNG), the buildup of infrastructure, and the rise of global gas trade are indeed exciting developments for businesses, entrepreneurs, and financiers.

However, it may very well be that the most profound implications of the transforming global gas markets will be for governments and policymakers. The shifts in gas markets are upsetting the half-century-long status quo of global gas relations and carry profound geopolitical implications. If the optimistic projections of the gas revolution come to fruition, American gas could secure and diversify Europes supplies, reign in Russias energy influence, woo energy-hungry Asia, and ensure that the twenty-first century once again remains in the firm grasp of the United States and its allies. Other countries have also made it clear that they will not remain on the sidelines. Canada, Australia, China, Argentina, and some European states have either reinvigorated their own gas development or considered shale exploration. Gas-hungry states like China, India, Japan, and South Korea look to import American LNG, while the Central and Eastern European states have likewise lobbied for American LNG exports to reduce their dependence on increasingly revanchist and aggressive Russia. For some, as a cleaner fossil fuel, gas holds promise as a means for reducing carbon dioxide emissions in the face of climate change concerns. If a new era of gas is arriving across the globe, then the new geopolitics of gas is coming on its heels.

What will the new geopolitics of gas mean for the United States, Europe, Russia, China, and beyond? This book explores this question by assessing the political implications of the transforming global gas markets. Gas is no longer a scarce, localized, difficult-to-transport resource doled out by energy monopolists (and their affiliated states), not infrequently in expectation of commercial and political concessions under the threat of price hikes or supply cuts. Instead, gas is becoming a freely traded and increasingly available commodity worldwide, and with abundant gas and rising global gas trade, the established modus operandi between importing states and traditional suppliers is changingstrengthening the bargaining position of the former and weakening the leverage of the latter. Markets are increasingly setting the terms of trade, and gas monopolies look poised to lose some of their geopolitical clout. This analysis will focus on the main players in the new geopolitics of natural gas: the new gas leader, the United States; the largest gas importer, Europe; the historic gas powerhouse, Russia; key gas transit states such as Ukraine; isolated gas producers such as Azerbaijan, Turkmenistan, and beyond; and new centers of gas demand such as China, India, and other Asian nations.

The strategic and geopolitical role of energy has long colored interstate relations. As a result, energy security has consistently remained a top concern for most governments, even as its definition greatly expanded. In the past, policymakers and scholars focused mainly on oil rather than natural gas, which played second fiddle to oil on the energy markets. Initially, gas was little more than a waste product of oil production because of its lower energy density. Historically, it has also been mainly a consumer-oriented commodity, while oil has been crucial for the military and industry. Indeed, it was oil rather than gas that won the First and Second World Wars for the Allies, and it was American oil supplies that established the country as the leading power of the twentieth century.

At the same time, gas was more susceptible to political variables than oil. Difficulties in transporting gas long distances over land or across seas have made it a regional fuel rather than a fungible global commodity. In addition, gas transportation has often been operated by monopolies. Consequently, gas-producing and gas-importing countries have had to forge direct and lasting links with each other via long-term gas contracts and codeveloped pipeline infrastructure. For instance, the centerpiece of twentieth-century gas geopoliticsthe gas supply relationship between European states and Russiaemerged in the 1960s, with the Soviet buildup of pipeline infrastructure and establishment of long-term contracts. This relationship has remained largely unchanged until the present day. In contrast, in the international oil markets, middlemen freely trade oil. Moreover, because gas historically had been supplied primarily by land-based pipeline monopolies rather than by competing ship tankers moving in any direction across the seas, gas-importing countries have had to rely on a limited number of suppliers. As a result, until recently, many countries, especially in Central and Eastern Europe and the Caucasus, have been 100 percent dependent on a single gas pipeline, a single gas-producing country, and even a single company, such as the Russian gas giant Gazprom. Meanwhile, gas-producing countries such as Russia have likewise been dependent on a fixed set of pipeline export routes and consumers. Then, too, with other states serving as transit territories for the pipelines carrying gas from producing to importing countries, these territorially driven gas trade relationships have impacted national, regional, and international politics. At the start of the twenty-first century, however, changes in the global gas sector are upsetting the status quo and rewriting the rules of the game in the new geopolitics of gas.