We mostly take for granted the prosperity that cheap and plentiful fossil fuels provide. And those in the West rarely even think about energy transmission - until someone in Russia turns off the taps and temperatures begin to drop!
Modern society has conflicting aims when it comes to fossil fuels. We worry about pollution and possible climate drift due to human activity, yet the search is on for more and cheaper fossil fuels because we need our economies to function and our trade to grow. We pay little attention to conservation, and oil companies annually flare an estimated 150 billion cubic metres (bcm) of unwanted 'associated' gas. This is the natural gas liberated when crude oil is brought to the surface and decompressed. And 150bcm of natural gas a year neatly matches the amount Europe annually imports from Russia. Meanwhile, North Sea oil and gas reserves are declining, which means that the gas we burn may soon have to come from increasingly far off places like the Nigerian gas fields, piped across the Sahara, or indeed the Shatlyk fields of Southern Turkmenistan.
Compared to coal, oil and gas are much less evenly distributed over the continents. That is why the long-haul transport of oil and gas has ballooned into a major industry in its own right. Vast amounts of fuels are pumped or tankered every day over enormous distances, often crossing large chunks of continents. For crude oil, Europe has numerous maritime supply options. However, the continent annually imports some 250bcm of natural gas and its transport raises different issues.
When natural gas is condensed at -163°C at pressures near atmospheric, its volume is reduced by a factor of almost 600. Refrigerated tankers carrying liquefied natural gas (LNG) have capacities of up to 150,000 cubic metres (170,000 tonnes). Some of the new ones under construction are designed to carry up to 260,000 cubic metres of LNG. Typically, the tanks are made of several layers of aluminium and insulated with polyurethane. Boil-off gas is used to propel the ships and provide energy for refrigerating the payload. It sounds straightforward, but tankers and ancillary facilities for handling LNG require technically sophisticated and very expensive equipment. Infrastructure for conveying six million tonnes of LNG a year, for example, could cost $5bn. This corresponds to about 8.5bcm of natural gas. Europe imports about 50bcm a year in this manner.
Tankers or pipelines
Crude oil is usually somewhat cheaper to transport by tanker than by pipeline. Approximately 60 per cent of all long-haul crude is carried by tankers. On the other hand, for distances of less than 3,000-4,000km, it usually costs less to transport natural gas by high-pressure pipelines compared to tankering as LNG.
Meanwhile, conveying gas in pipelines is a costlier proposition, requiring more expensive equipment and longer lead times for construction.
The high cost of gas pipelines (nearer $2m per km) makes it necessary for gas supply contracts to be fairly long-term. Often, prices need to be agreed and contracts signed before the pipelines are constructed. Together with containment issues for gases, these parameters generally require fixing the transmission paths; gas pipelines nearly always deliver to consumers for whom the gas was originally intended. Such factors make it harder to equilibrate regional gas price differentials compared to the global market for crude oil. Spot markets for natural gas, therefore, tend to be more localised. Floating liquefied petroleum gas tankers provide an exception, but many of these are contract-bound and, unlike crude oil, the amount of natural gas that changes hands on the high seas is relatively limited.
There is another important difference between the transport of crude oil and natural gas. Even when compressed (normally to between 70 and 150 bars), a gas pipeline delivers less energy per unit volume, compared to a pipeline of the same diameter carrying crude oil. The same 20in diameter pipeline could carry an estimated four times the energy load of a gas pipeline when carrying, say, fuel oil. This makes oil pipelines more lucrative to operate.
The problems of design and operation, however, are nothing compared to what can happen when pipelines cross borders between states with unresolved political issues between them.
Like with most other industrial infrastructures, much of the investment for the construction of a pipeline is made before the installation is commissioned. A number of fuel delivery contracts would have been signed. A whole host of agreements need to be put in place before a pipeline crosses parts of another country's territory. In addition to a transit fee, the host country often proposes to 'lift' some of the fuel crossing its territory, usually at some preferential rate.
In western and north western Europe, owners and operators of pipeline systems would expect contracts and common legal frameworks to govern large but routine business transactions. In case of disagreement, some tractable recourse to law or arbitration would always be available.
The recent Russia-Ukraine confrontation over gas supplies has served as a reminder, however, that pipeline systems have the potential to become part of the fabric of regional or international conflicts. Clearly, much depends on the nature of relations between the states or governments involved. When political passions are inflamed, as has so often happened in the Middle East, or geopolitical calculations take precedence, as in the 'near abroad' of the Russian Federation, prior agreements tend to serve merely as one component of a constantly shifting reality. Controversially, when geopolitical tensions and fuel transmission problems join up, the level of 'host country' demands may alter with changes in political climate between particular states.
In the Middle East, none of the great trans-national pipelines constructed after World War Two are functioning any longer. The trans-Arabian pipeline ('Tapline') was constructed to run from the Arabian oil fields, through Jordan and Syria, to the Mediterranean coast at Sidon, in Lebanon. With a final annual capacity of 25 million tonnes, Tapline was designed to provide a shorter and cheaper route compared to tankers circumnavigating the Arabian Peninsula and passing through the Suez Canal. At the time, its construction was considered "among the greatest of all engineering achievements".
In the event, by 1975, repeated Syrian demands for transit-fee increases made Tapline economically unworkable. Damascus also wreaked havoc with the operation of the Iraq Petroleum Company (IPC) pipelines, which connected northern Iraqi fields to the Mediterranean. This gave Syria an unfortunate reputation as a transit state and convinced Saddam Hussein's Iraq to build alternative, albeit longer and more expensive, pipelines through Turkey and Saudi Arabia. Of the latter two, the Kirkuk-Ceyhan (on the Turkish Mediterranean coast) line is still operating, albeit at reduced capacity due to damage by US bombing during the invasion in 2003. The other pipeline was "confiscated" by Saudi Arabia in the aftermath of Iraq's invasion of Kuwait in 1990.
It is difficult to view these squabbles as being driven by purely commercial considerations. The operations of the IPC lines and the Trans-Arabian pipeline were repeatedly interrupted by the Syrians, who stood to benefit by many hundreds of millions of dollars through combined packages of 'off take' rights, preferential tariffs and transit fees.
The case of formerly Soviet-owned pipeline networks in Eastern Europe is somewhat different. After World War Two, Soviet engineers constructed the largest integrated pipeline system in existence. This network supplied crude oil to all the Soviet Republics and former Warsaw Pact allies, as well as providing conduits for the export of about 100 million tonnes of crude oil to the West.
In building this system, little regard had been given to internal frontiers between individual Soviet Republics. After the dissolution of the Soviet Union, each of the new republics laid claim to pipelines on its own territory. In effect, international boundaries were erected in the paths of these oil and gas pipelines many years after the systems had been completed. As a result, Russia's gas and oil export corridors toward the West now cross into the territories of independent Ukraine and somewhat less independent Belarus.
The new configuration has given rise to endless squabbles over transit fees, fuel prices and interference in energy transmission, as well as straightforward political blackmail. The latest Russo-Ukrainian confrontation led to Europe-bound supplies being interrupted in mid-winter for almost three weeks.
In the Caucasus and the Caspian Basin, however, the roles are reversed as Russia acts as transit country for Kazakh and Turkmen hydrocarbon resources transported towards the North and the West. In this region, Russian policies since the dissolution of the Soviet Union have aimed at regaining their controlling position and drawing maximum profit from Russia's role as a transit country. Moscow has carefully maintained a near monopoly over purchases of Turkmen gas, which has far lower production costs than Siberian.
Low domestic gas prices
Russia's Gazprom has used this gas to support low domestic gas prices - vastly underpaying Turkmenistan for long periods. Meanwhile, Gazprom has also been exporting natural gas to Europe at prices which were far higher than those paid to Turkmenistan and which for Europeans have nearly tripled since 2001-2.
In Kazakhstan, the Caspian Pipeline Consortium (CPC) oil pipeline is the only major direct outlet from the Chevron-operated Tengiz field out to sea. In this case, Moscow's insistence to direct the 28 million tonnes per year pipeline through Russian Federation has paid off handsomely. The CPC and the regional government have been charging exorbitant transit fees for ferrying Kazakh oil loading onto tankers at a new terminal near Novorossiysk on the Black Sea coast. And the 'control' element has worked very effectively. Not only did Russian efforts delay the construction of the pipeline when oil prices were low during the late 1990s, they have since blocked the expansion of the pipeline to its eventual design capacity of 67 million tonnes.
Both Kazakhstan and Turkmenistan have thus been reminded of the cardinal rule of energy transmission, valid for producers and consumers alike: the necessity to maintain alternative transmission routes. Indeed, the more recently constructed Baku-Tblisi-Ceyhan oil pipeline and the Baku-Tblisi-Erzurum gas pipeline, which bypass Russia, provide just such alternative transmission routes. Russian foreign minister Sergei Lavrov has called them "politically unacceptable".
Not just trans-national
Not all pipeline problems arise from inter-state rivalries. In India's north-eastern state of Assam, separatist forces regularly blow up regional oil pipelines. In neighbouring Pakistan, the tribesmen of Balochistan similarly show their displeasure at central government policies by blowing up gas pipelines with worrying regularity.
Baloch nationalists have long argued that the central government was giving the region little in return for exploiting their gas and mineral resources. Constructing the economically attractive Iran-Pakistan-India gas pipeline does not, therefore, merely involve solving problems between the three regional powers and overcoming diplomatic resistance from the US. In the South Asian subcontinent, there are also immense internal political tensions.
Some Nigerian pipeline incidents make similarly terrible reading. In Nigeria, the extraction of oil and gas takes place in, and the pipelines pass through, regions inhabited by people who have seen precious little benefit from the nearly half a trillion dollars of oil wealth that has (or not, as the case may be) passed through the coffers of the Nigerian state in the past several decades.
Instead, some locals vandalise the lines, hoping to retrieve a little of what they think is owed to them. There are frequent accidental fires often resulting in loss of life. However, events have taken a far nastier turn, with guerrilla-style attacks on oil installations, abductions of personnel, bombings and arson. Careless operation by the oil companies has polluted their land and poisoned their water, and the region's poor are angry. Sending in the army to face them misses the point.
Back in war-torn Iraq, after the invasion in 2003 attacks on oil and gas transmission lines became part of the multiple armed struggles that have dogged the country. By disrupting pipeline operations, insurgents have been able to deprive successive post-Saddam administrations of large amounts of income that could have been used to stabilise the new regime's hold on power.
Since early 2008, the pipeline war seems to have subsided, with the number of major attacks on pipeline installations and personnel dropping from around a hundred per year to a little above a score or more.
Once a cheap fuel, natural gas has become a prized strategic commodity, commanding high prices. As cheerfully explained in the Moscow Times, "…wishing to maintain European dependence on Russian gas, Moscow seeks to control the sources… by signing exclusive deals with Uzbekistan and Turkmenistan for gas supplies."
European gas deals
More recently, European governments have been trying to cut separate deals with gas producers, not excluding Russia. With over a quarter of present-day European gas consumption coming from Russia, would Moscow use its dominant position to starve us of energy? Probably not. The element of interdependence is far too great. But that does not mean they would not attempt to squeeze their European customers on the price of gas. Indeed, that price has already tripled since 2001-2 and, if Moscow has its way, it may rise still further.
Iran has long been excluded from the gas-supply equation through the lack of sensible dialogue between Tehran and the West, exacerbated by the US interdiction on investments in Iran. The country that holds the second largest natural gas reserves after Russia has thus been barred from becoming an alternative source; but (we may ask ourselves) would Iran be a less menacing supplier?
In the meantime, the Russian Federation has slipped two more jokers into the pack. The first is the 'Nord Stream' gas pipeline, projected to run from the Russian mainland near St Petersburg, across the length of the Baltic seabed, landing directly on German soil. The initial 28bcm of gas per year (projected to rise to 55bcm per year) for this line is expected to come from Russia's Stockman Field, under the Barents Sea.
Having cancelled its production sharing agreements over the Stockman field with the international oil companies during the period of high oil prices, Russia in 2009 has neither the capital resources nor the deep-sea technology to exploit this field.
The other joker in the pack, 'South Stream', is proposed to run from Southern Russia, across the seabed of the Black Sea into Bulgaria, and on to the Balkans. Quite apart from not having the gas to fill the 'South Stream' gas pipeline, however, Russia's finances have been largely ruined by the recent collapse of the oil price. As things stand, Moscow is nowhere near being able to fund this project or indeed Nord Stream. They are both eye-wateringly expensive.
Whatever the likelihood of these two projects coming to fruition, the planners of Nabucco now have to keep looking over their shoulders.
All this is a reminder, first, that pipelines do play a crucial role in bringing us the fuels so basic to our needs and, second, that some pipelines can easily get entangled in geopolitical intrigues and machinations.
We can see, however, that potential pipelines can also be used very effectively to pit against competing projects on the energy and geopolitical chessboards, without those drafts necessarily reaching anyone's drawing boards.
In South Asia, India similarly derived enormous benefits out of drawing out the negotiations over the ever delayed Iran- Pakistan-India gas pipeline.
With the US offering nuclear fuels as an alternative source of energy to lure India away from the project, Iran's proposal to sell gas to the sub-continent has provided India with a valuable bargaining chip.
We are all beginning to learn to live with pipelines.
Rafael Kandiyoti is senior research fellow and professor of Chemical Engineering at Imperial College London. His book 'Pipelines, Flowing Oil and Crude Politics' has just been published by IB Taurus