Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy & international politics.

Sunday's
Feature

The Coming Natural Gas Cartel

By Michael J. Economides

Oil is not America’s only energy addiction. With domestic gas production in decline, the United States and many of its allies will grow more dependent on imports to generate electricity and heat homes. Gas suppliers will band together in response to the growing global demand, just as oil producers did decades ago. Few people talk about the looming U.S. dependency on imported natural gas, but it could be painful.

In a recent poll, Americans ranked “energy dependence” as their second greatest concern, after the Iraq war. That is hardly surprising. It is now a well-publicized fact that the United States imports 65 percent of the oil it consumes—much of it from unsavory, hostile countries. But the situation is even tougher than most people think. The United States is not only dependent on foreign oil, it is also increasingly dependent on foreign sources of natural gas—a fuel that provides 20 percent of America’s electricity and heats more than half of U.S. homes (including 70 percent of all new homes).

Natural gas is popular because it is the world’s cleanest-burning fossil fuel. It produces fewer emissions and pollutants than either coal or oil. Since the early 1970s, worldwide reserves of natural gas have increased steadily, at an annual rate of around 5 percent. The number of countries with known reserves has increased from around 40 in 1960 to more than 85 today.

There is virtually no overlap in the United States today between the uses for oil, almost all of which goes to transportation, and uses for natural gas, most of which goes to heating and electricity production. With oil supplies dwindling and production capacity strained, there will be an attempt by the world’s leading economies to use more natural gas for transportation, both directly, as some cities have done with their public transit systems, or indirectly by, for instance, electrifying cars. This will cause the demand for natural gas to skyrocket, creating what may be America’s largest future energy shock.

Why? The United States has historically relied on domestic sources of natural gas. Imports constitute a very small percentage of U.S. gas consumption: Thirteen percent comes from Canadian pipelines, and an additional 4 percent is imported as liquid natural gas (LNG) from other nations such as Qatar. That would hardly be concerning, were bad news not en route. Domestic gas production is in decline. Companies have scrambled to drill more fields to stem the decline, with little luck. During the past four years, the number of rigs drilling for gas has more than doubled, from around 600 in March 2002 to more than 1,300 today. Yet, natural gas production has remained flat or falling and it cannot even be attributed to the recent hurricanes. The country no longer has the geological and physical requirements to increase production. The increase in drilling activity, fuelled by increases in natural gas prices, is not slowing the inevitable decline of domestic production.

Importing natural gas from foreign countries—cooled into LNG—will soon be America’s only option for meeting demand. That is increasingly the case in other countries such as Japan, South Korea, and much of Europe, all of which have no significant domestic reserves and, like the United States, are eager to import.

This situation puts LNG exporters, like oil exporters, in an incredibly powerful position. Countries such as Algeria and Qatar—also-rans in the oil business—are poised to become natural gas powers in the 21st century [see chart]. They are certain to organize a natural gas cartel, similar to OPEC. That scenario worrisome for several reasons. Some of these countries, such as Russia, have already used natural gas as a political weapon.

Others, notably Iran (which has only scratched the surface of its gas potential), already appear headed for confrontation with the United States and Europe. Iran helped form the Gas Exporting Countries’ Forum (GECF)—a group of 15 gas-producing countries that met for the first time in Tehran in May 2001. Collectively, the GECF controls 73 percent of the world’s natural gas reserves and 41 percent of production. Somehow, the GECF has escaped the world’s attention. As the gas market grows increasingly global, that kind of indifference will become a luxury of the past.

Natural Gas Reserves, Production, and Reserves-to-Production Ratio

Country	Proved Reserves trillion cubic feet (2004)	Gross Gas Production billion cubic meters (2004)	Reserves to Production Ratio (R/P)*
Qatar	910.1	39.2	657.7
Iran	970.8	85.5	321.6
United Arab Emirates	213.9	45.8	132.3
Saudi Arabia	238.4	4 64	105.5
Russia	694.4	589.1	81.5
Algeria	160.4	82	55.4
Turkmenistan	102.4	54.6	53.1
Malaysia	87	53.9	45.7
Indonesia	90.3	73.3	34.9
Uzbekistan	65.7	55.8	33.3
Norway	84.2	78.5	30.4
Netherlands	52.7	68.8	21.7
Argentina	21.4	44.9	13.5
United States	186.9	542.9	9.8
Canada	56.6	182.8	8.8
Britain	20.8	95.9	6.1

Source: BP Statistical Review of World Energy 2005.

Note: The Reserves-to-Production Ratio is the number of years the estimated reserves will last at the current level of production.

 

Michael J. Economides is editor in chief of Energy Tribune. Petroleumworld not necessarily share these views.
Editor's Note: Thisarticle was first publish in Foreign Policy, on March 28, 2006. Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

Fair use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator. Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

Internet web links to http://www.petroleumworld.com are appreciated.

Petroleumworld 05/14/ 06

Copyright©2006 Foreign Policy. All Rights Reserved.

 

We invite all our readers to share with us
their views and comments about this article.

Your feedback is important to us!

Send this story to a friend

Write to: editorpw@hotmail.com