Pipeline Politics in Asia: The Intersection of Demand, Energy Markets, and Supply Routes

Pipeline Politics in Asia: Implications for the United States

67 the national bureau of asian research nbr special report #23 | september 2010 Pipeline Politics in Asia: Implications for the United States Mikkal E. Herberg mikkal e. herberg is a Senior Lecturer in the Graduate School of International RelationsandPacificStudies at theUniversityofCalifornia–San Diego,andResearch Director on Asian energy security at The National Bureau of Asian Research. He can be reached at . 69 implications For the United states u herberg T he conference discussion, essays, and comparative analysis of four different regional pipeline cases raised a wide range of issues with significant implications for U.S. energy security and strategic interests in Eurasia. The cases examined brought into sharp relief three strongly interrelated, sometimes conflicting, energy security and strategic interests for the United States in Asia’s developing pipeline geopolitics and suggested new, more demanding challenges in the future. First, in a broad sense, U.S. (and global) energy security is fundamentally enhanced by the maximum development of new oil and gas supplies in Eurasia and the development of a highly diversified regional pipeline infrastructure to transport that oil and gas to booming Asian markets. As one U.S. government participant put it during the conference, “the U.S. does not see energy security as a zero-sum game….the vast energy resources in Russia and Eurasia will play an important role in the long-term energy security of both East and West.” Global oil supplies are fungible and markets are highly integrated and fundamentally global in nature. Major supply shortages or disruptions in any part of the world affect the entire global market. Oil prices rise for all consumers regardless of where their particular oil imports originate. Consequently, the United States has a strong interest in promoting investments that bring more incremental supply to anywhere in the global market and investments that produce a more diversified range of oil supply routes. Natural gas markets are by their nature more regionalized, but the principle remains the same: more supplies and varied pipeline routes across regions enhance the flexibility of gas markets, strengthen supply security, and reduce price volatility for all those reliant on cross-border gas flows. The phenomenal growth of liquefied natural gas (LNG) markets over the past two decades adds to that flexibility and improved supply security. Hence, in the cases on which the conference focused, the United States has largely pursued its fundamental energy security interest in supporting the successful development of new oil and gas pipelines from Russia to East Asia, new pipelines from Central Asia to Asia, new gas pipelines to meet India’s rising energy needs, and oil and gas pipelines to supply China’s booming demand. Nevertheless, the conference also suggested that the United States has significant energy security and strategic interests at stake in the geography of pipeline development in Eurasia that overlay and, in some cases, reshape how Washington pursues its energy security goals. While the United States has a basic interest in promoting the flow of Eurasian oil and gas to Europe and Asia, it has also actively sought to influence the geography of pipeline routes from Central Asia in order to limit Russia’s control over European oil and gas markets as well as over the scale and direction of oil and gas supplies from Central Asia. As suggested in the essay by Edward Chow and Leigh Hendrix, Russia has worked diligently and often clumsily since the collapse of the Soviet Union to maintain as much control as possible over the transport of Central Asian oil and gas to Western markets. Such efforts have helped reassert broader Russian diplomatic and economic influence in Central Asia while at the same time protecting Gazprom’s dominant gas market position in Europe from competition from Central Asian gas. Russia and Gazprom, as the suppliers of 50% of Europe’s imported gas, have sought to exclude other Central Asia gas supplies from European markets or at least to ensure that any gas flows to the West through Russia and Gazprom’s system. Hence, the United States has worked diplomatically to support commercially questionable alternative gas pipelines, such as the Nabucco project, that would supply gas to Europe from Azerbaijan, Turkmenistan, and possibly Iraq, while bypassing Russia. 70 nbr special report u september 2010 Similar motivations have shaped U.S. policy toward the key future oil development in the region: looming production from the huge offshore Kashagan oil field in Kazakhstan. The United...