An oil and natural gas extraction site, outside Rifle
An oil and natural gas extraction site, outside Rifle, on the Western Slope of Colorado. Image Credit: AP

With the US and Australia now among the leading gas producers — thanks to the US’ shale gas production and Australia’s huge gas discoveries — the world’s gas industry is taking a significant turn, pitting new producers against traditional giants such as Russia, Qatar, Iran and Algeria.

The battle for supremacy in large export markets has raged, particularly in Europe and East Asia. The US has quickly, and unexpectedly, become a key source of gas to Western Europe, while Australia has quietly broken into the export markets of Japan and South Korea, thus fanning the flames of competition. Associated with this are a number of technical and logistical factors that favour some countries.

These relate to the cost of producing and transferring gas. For example, the US-produced shale gas is costlier than traditional gas produced in Algeria. The cost of transferring gas from the US to Europe using tankers has increased US gas prices by more than 30 per cent compared to the Russian exports to Europe, send through low-cost pipelines.

These are the same reasons that increase the prices of Qatari and Iranian gas, which are exported through tankers. However, US gas exports to Europe has grown by 270 per cent last year compared to 2017 as some European countries seek to diversify their imports amid US pressure to improve the trade balance between the two sides.

The US efforts in this respect were met with a giant project between Russia and Western Europe, and supported by Germany, to extend a new gas pipeline — Nord Stream 2 — passing through northern Russia. Washington has resisted the scope of the project in an attempt to hamper Europe’s reliance on Russia for gas.

Russian Foreign Minister Sergei Lavrov recently accused the US of blatantly interfering with the project, which aims to pump gas to Germany via a pipeline running through the Baltic Sea. It will double Russia’s exports of gas, posing a challenge for the high-cost US exports and will result in economic and strategic consequences that Washington would not like.

That’s why it is seeking to obstruct the project, which we believe will be completed thanks to its importance to Europe in general and Germany in particular for many reasons, including those related to price as well as the ease of supply in transferring vast volumes easily to European countries.

Traditional gas-producing countries such as Qatar and Iran will face stiff competition. Australia has entered the Asian gas market, which is geographically closer and more stable than Qatar and Iran, which are in a turbulent region and fanning the flames of instability and tension.

Amid these developments, the biggest loser in Ukraine, through which Russian gas exports to Europe were routed through an old pipeline built in the Soviet period. Once the Nord Stream 2 is completed, attention will gravitate to the new line and gradually diminish the importance of the old one. This means Ukraine will lose revenues and may also lose future Russian gas supplies.

In addition, the recent discoveries in many regions, such as eastern Mediterranean and the Arabian Gulf, will stoke war for gas. This will undoubtedly affect prices, which are expected to diminish the influence of policies pursued by gas exporting countries.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.