Accessibility links

Higher Oil Prices Make New Pipeline Construction More Likely

Largely because of rapid growth in Asia, world oil consumption is growing faster than production. Supply short fall, combined with sharply higher oil prices, is spurring the construction of new pipelines to get oil and gas to world markets.

Most of them would transport Middle Eastern or Caspian Sea oil to seaports, from which it would head west to Europe and America or east to China and India.

Philip Verleger, a researcher at Washington's Institute for International Economics, believes prices are likely to remain high for several years. He says increasing demand comes mainly from fast-growing China and India, where oil consumption has more than doubled over the past 13 years. The two countries now account for 10 percent of global oil consumption. The rise of China and India, says Mr. Verleger, is the most important change in the global energy economy in 30 years.

John Browne, the chairman of BP, one of the world's biggest oil companies, says many of the pipelines now under consideration would serve the expanding Indian and Chinese markets.

"Pipelines are being built, extraordinary ones, from the Caspian Sea to the Mediterranean," he said. "I'm sure there is one being built from the Taron Basin in the west of China to Beijing. There will be, I'm sure, another one from east Siberia to somewhere in China. There will be very long pipelines built."

The BP chairman could have mentioned that his company has been a key player in the construction of the nearly complete $3 billion, 1,700-kilometer pipeline from the Caspian Sea to Turkey, which is expected to become operational this year. This Baku Tblisi Ceyhan (BTC) pipeline is capable of transporting one million barrels of Caspian Sea oil daily to the Mediterranean port of Ceyhan in Turkey. This is the first pipeline from the Caspian oil fields across the Caucuses Mountains to the Mediterranean. Its construction means that Caspian Sea oil no longer is dependent on Russian Black Sea ports. The line also permits tankers to bypass Turkey's busy, environmentally fragile Bosphorus straits.

Oil analysts stress that despite rising demand there is at present no shortage of oil and gas, but the doubling of oil and gas prices over the past two years has made some expensive and long delayed pipelines economically feasible. One such proposal involves political adversaries India and Pakistan, whose fast growing economies require increasing supplies of energy. At the recent World Economic Forum meeting in Switzerland in January, Pakistan's prime minister, Shaukat Aziz, unveiled a proposal to build a gas pipeline from the Persian Gulf to Pakistan and on to India.

"From Pakistan's standpoint, we produce a lot of our gas but with the higher growth rates we need to import more gas, either as liquefied natural gas [on ships] or to pipe it in," he said. "Now the initial feasibilities show that piping the gas in makes more economic sense because we are located close to the gas fields. And for those of you who know the biggest [gas] bubble in the world is in the Persian Gulf, half owned by Qatar and half by Iran. So we're talking to both. And we're also talking to India about the energy corridor because their needs are really quite substantial."

The proposed gas pipeline would cost from $2 billion to $4 billion and take from three to five years to build.

Despite the construction of more pipelines in the decade ahead, offshore production in West Africa and the Gulf of Mexico will continue to grow. That means that, in addition to the need for pipelines, the demand for oil super tankers is likely to grow.