In recent years, the U.S. Geological Survey has estimated that the polar north may hold up to 13 percent of the world’s undiscovered oil resources*—potentially as many as 160 billion barrels—and as much as 30 percent of the world’s untapped natural gas supplies.
With climate shifts in the Arctic raising temperatures and reducing sea-ice coverage, the region has become increasingly accessible with each passing year, heightening the potential for commercial development. This has raised the prospects for not only maritime shipping across Eurasia’s northern rim, but also seabed energy-drilling operations on the continental shelves of the Arctic littoral states, where much of the oil and gas reserves are thought to lie.
As a result, since gaining observer status China and India have spent considerable time cultivating ties with key energy-rich Arctic littoral states, including Iceland, Norway and Russia. (In the case of Norway, China’s path has been somewhat tricky; Beijing is inching closer to reconciliation with Norway after a diplomatic row triggered by the award of a 2010 Nobel Peace Prize to Liu Xiaobo, a well-known Chinese dissident, and the two countries have been tentatively considering a joint venture to explore for oil in the waters between Norway and Iceland.) With a significant portion of the Arctic’s projected seabed energy reserves located within these states’ respective exclusive economic zones, China and India are pursuing closer diplomatic and private-sector relationships with these countries as a means to put themselves in a favorable position to receive future Arctic energy exports, and assist where applicable in the development and shipment of offshore oil and gas supplies.
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Asia Turns to North America for LNG
By Saurav Jha
Via The Diplomat
By 2017, a minimum of 10 percent of projected Indian liquefied natural gas (LNG) re-gasification (import) capacity is set to be serviced by the United States. With gas pipeline projects to India’s west unlikely to take off soon, Indian gas importers are on the lookout for further North American LNG supplies, which later in this decade are expected to be cheaper than oil–linked cargo originating from Qatar. Along with Japan, India is also leading an Asian buyers’ consortium to break oil-indexation in the Asian LNG space, which buyers consider a prime factor in making it the world’s most expensive regional gas market. The success of this initiative hinges on the willingness of the U.S. political economy to move more quickly in making greater supplies available to non-free trade agreement (FTA) countries such as India and Japan. The U.S. thereby has to make a strategic call to align with a buyer’s group to allow its LNG exporters to capture market share in the medium term. However, the extent to which Indian gas importers will serve as “anchor buyers” for U.S. LNG will also depend on the growth of a similar relationship with Canada.
Indian domestic gas production has actually been declining in recent years, with the demand-supply gap expected to continue to widen until at least 2020. With both the IPI and TAPI projects still subject to geopolitical headwinds, a major increase in LNG import capacity is underway. Yet Asian LNG spot prices have been hovering around the $18 per million metric British thermal units (mmbtu) mark, and at these prices there are few takers for imported gas, as Indian major GAIL is discovering with its regasification plant in Dabhol operating at only a fraction of designed capacity.
These high prices stem from their traditionally close links to Japanese Crude Cocktail (JCC) prices (consistently over $100 per mmbtu for a while now) from sources such as Qatar, which insist on it. As India’s Minister of Petroleum and Natural Gas Veerappa Moily put it recently “The practice of oil-linking has no relevance … and is largely responsible for such abnormally high prices.” This sentiment is of course shared by the Japanese, who post-Fukushima have become the world’s largest LNG importers and who have been talks with India to coordinate LNG purchases globally. A result of those talks has been an agreement between Japan’s Chubu Electric Power Co and GAIL to buy LNG jointly.
This agreement comes at a time when both Indian and Japanese majors have firmed up long-term supply contracts with U.S. LNG operators who have secured complete approvals for non-FTA export at Henry Hubprices. India’s GAIL, for instance, is already contracted to receive 3.5 million tonnes per annum (mtpa) of LNG starting 2017 from Cheniere’s Sabine Pass terminal in Louisiana at a 115 percent markup over Henry Hub plus a $3 per mmbtu capacity charge. Even at a Henry Hub price of $6 per mmbtu (which is unlikely once winter is over), this would still be cheaper than the price Asian buyers are paying currently and expect to pay if oil-indexation is maintained at current levels. Indeed apart from sourcing potentially cheaper gas, the move to secure Henry Hub prices is an attempt by Asian buyers to put pressure on their existing suppliers to move away from oil-indexed contracts. GAIL incidentally has also contracted to export another 2.3 mtpa from Dominion Energy’s Cove Point plant from 2017, taking its total for U.S. supplies to 6 mtpa. All of it is destined to be sold in India, which will have 48 mtpa of LNG import capacity in place by then.
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The Pakistan-China Corridor
By Christopher Ernest Barber
Via The Diplomat
Historian Daniel Headrick made the crucial connection between means and ends in the projection of global influence. For instance, Headrick argued that the Suez Canal, which opened in 1869, acted a tool of empire for the great powers of the nineteenth century. The building of a canal through the Sinai Peninsula not only made trade and empire in Asia faster by avoiding the Cape of Good Hope, but more economical too. This was particularly the case for the world’s superpower, Great Britain. For Britain, the Suez was an important strategic consideration in its imperial outlook, making the transport of goods, officials and soldiers to Bombay and other key colonial hubs easier and affordable. At the same time, the canal aided the wider globalization process of the nineteenth century, which opened Asia up to the advent of Western adventure capitalists with exploitation and domination never far from the surface. The Suez Canal acted as a “tool of empire,” as Headrick put it, and in a small but important way, the world became that much more global—all to the benefit of those Western nations that could harness of the power of the sea.
Headrick’s argument turns on a profound if easily overlooked point: those with easy access to the sea-lanes of the world invariably have the tools for global power and trade. Even today, the laws of economic scale dictate that air and rail, while important in their own right, will always be poor cousins to the efficiency and capacity of container ships and waterborne trade.
Despite the fact that the free trade zone port of Gwadar in Pakistan’s southwestern province of Balochistan has been an unprofitable enterprise with operational control now in Chinese hands, its potential remains. If anything, the development of the deep ocean port and an associated international airport, as well as the creation of a transport corridor connecting Gwadar to China’s easternmost province of Xinjiang, is a game changer for the Central Asian region. In Beijing this February, President Mamnoon Hussain and Chinese President Xi Jinping signed a series of agreements designed to breathe life to the corridor project. In the coming years, the once sleepy fishing enclave of Gwadar will become a staging ground for the geopolitical reorganization of the region.
With the development of the corridor, Central Asia, traditionally an economically closed region owing to its geography and lack of infrastructure, will have greater access to the sea and to the global trade network. For Afghanistan and Tajikistan, both of which have signed transit agreements with Pakistan, it will provide a more economical means of transporting goods, making their export products more competitive globally. For China, meanwhile, the corridor will provide it with direct access to the Indian Ocean, enabling China to project itself strategically into the mineral and oil rich regions of Western Asia and Africa (and beyond). And for Pakistan, the project provides the country not only a third deep-sea port but also a better connected gateway into China’s backyard, giving Pakistan the potential to make good on its free trade agreement with the dragon economy.
In purely realist terms, the project makes Pakistan a complicit satellite in China’s attempt to break the U.S. encirclement of Asia. Commentators link Gwadar to China’s numerous other port facilities and corridors developed in partnership with other nations. This “String of Pearls” looks much like a noose around Southeastern Asia as far as India and the United States are concerned. India in particular has looked on with continued unease at the Pakistan-China corridor and port in terms of its effect on the maritime balance of power in the Indian Ocean. Ideally, if regional relations were better, the corridor would be a circuit linking the three economic powerhouses of the region, China, Pakistan, and India (as well as Iran for that matter), integrating the economic systems of South Asia and Central Asia.
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These articles first appeared in The Diplomat.
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