NICOSIA: At first sight it all seems so simple. Some parts of the Middle East are blessed with large oil reserves, and others are not. Surely it would be an easy matter to establish a regional pipeline network, taking oil to those states that need it - as well as to conveniently located export terminals for markets outside the Middle East.
But experience has proved otherwise. The region is littered with rusting and decaying pipelines that have fallen victim to political rivalries and war. Now, efforts are being made to develop intra-regional pipelines carrying natural gas. The question is whether they will be more successful than those for oil.
While the first signs are encouraging, the ultimate answer will depend on the degree of political will that can be mustered in the region. For politics - international as well as domestic - has dogged Middle East energy cooperation initiatives since the early part of the twentieth century.
Take Iraq, for example. When commercial production began from the northern fields in Kirkuk in 1927, France wanted an export pipeline to pass through French mandated Syria, while Britain favored a terminal at Haifa in Palestine, which was under its mandate. As a compromise, two pipelines were laid. In the late 1940s a parallel pipeline to Haifa was built to handle increased exports - but it was never used because the creation of Israel in 1948 forced the permanent closure of both lines from Kirkuk.
In more recent times - in the mid-1980s - a pipeline was built from Iraq to the Red Sea terminal of Al-Muajjiz. But this was closed after the Iraqi invasion of Kuwait in 1990. And in June 2001, Saudi Arabia announced that it had taken control of the length of that pipeline crossing the kingdom.
Even more recently, the violence in Iraq since the US-led invasion in 2003 has shown the extent to which oil pipelines are vulnerable to sabotage. This vulnerability has been one of the most decisive factors in oil producing countries shying away from the concept of cross-border pipelines for export.
Conversely, oil importers are uneasy in the knowledge that the exporting state, or one across which a pipeline transits, has the power to close the tap if it so desires. History has shown cross-border energy projects become the first victims when political relations deteriorate.
Another important deterrent has been the poor performance of regional cooperation. What is lacking is both a visionary agenda and dynamic leadership committed to the economic integration of the region. Active support from senior political figures for regional cooperation projects has been minimal, driven, as often as not, by short-term political opportunism rather than long-term ambitions.
Against this gloomy backdrop, the chances of intra-regional natural gas networks being established might seem slim. Nevertheless, a number of projects are either under way or in the final stages of preparation.
One of the most promising ventures should see the extension of the recently completed Egypt-Jordan gas pipeline to Lebanon and then to Syria. Last January the premiers of the four states signed an agreement formally giving the go-ahead to the second stage of the Arab Gas Pipeline Project, as it is called.
But the biggest gas reserves are in the Gulf, particularly in Qatar's offshore North Field. A logical development would be for this field to be the hub for a vast intra-regional network. A first step in this direction is being taken with the Dolphin project which envisages North Field gas being transported by sub-sea pipeline to Abu Dhabi, for distribution to Dubai and Fujairah, and possibly later to Oman and even Pakistan.
France's Total and Occidental Petroleum of the US are strategic partners with Dolphin - representing the UAE Offset Group (UOG) - in this ambitious venture. Preparation work - the drilling of gas wells offshore, the construction of a gas processing plant at Ras Laffan and the laying of pipelines - has begun.
UOG is already sponsoring two power/desalination projects in Fujairah, with natural gas being supplied by Oman - in another successful cross-border gas deal - until volumes from Dolphin become available.
While all parties in the Dolphin project are pressing ahead, one crucial element in the equation is still missing: a natural gas sales and purchase agreement between Abu Dhabi and Dubai. At present Abu Dhabi is selling its own gas to Dubai at a bargain price, and the latter is hoping to strike a similar bargain with the volumes from Qatar - which will inevitably be more expensive because of transportation costs.
Ultimately the expectation is that a price deal will be reached because Dubai - like all expanding population centers in the Gulf - is in desperate need of natural gas for its power and desalination plants. Demand for electricity and water is constantly growing. Burning liquid fuel is expensive and harmful to the environment.
Without doubt the economic necessity of acquiring inexpensive sources of gas is providing a more pressing incentive than anything else for intra-regional economic cooperation. Arab governments are, it seems, beginning to understand at last that achieving such cooperation needs to be put high on the political agenda. Cheaper and more reliable power would provide an economic boost to a region struggling with rising unemployment.
Once again, such visionary schemes sometimes look better on paper than they do in reality. For example, Kuwait is one of the states that is in great need of natural gas for its power industry. Logically enough it signed a deal with Qatar for volumes of North Field gas to be transported northward by pipeline. But progress is being held up by a diplomatic dispute between Qatar and Saudi Arabia over a program broadcast by Doha-based Al-Jazeera television. As a result, the Saudi authorities have not yet given permission for the pipeline to pass through their territorial waters.
So the meddling hand of politics has not yet been removed entirely from the Middle East pipeline map, and the threat of future conflicts can not be ruled out. Furthermore, none of the current schemes has gone beyond bilateral deals between neighboring states. So it is too early to say for certain that natural gas will succeed where oil failed in creating intra-regional networks.
Nevertheless, there is agreement in energy circles that this is the century of natural gas. Such is the intense demand for this relatively clean fuel that sheer necessity may eventually see the boot put on the other foot - with economics, for once, rather than politics driving moves toward intra-regional cooperation. And that would see gas getting on the move in a big way - throughout North Africa, the Eastern Mediterranean and the Gulf.
Gerald Butt, Gulf editor of the Cyprus-based Middle East Economic Survey, writes a regular economic analysis for The Daily Star
Gerald Butt
© The Daily Star 2004
