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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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This New Middle East Pipeline Could Be A Gamechanger

  • The major new gas pipeline being planned will run along a 2,000-kilometre corridor via Oman and UAE through the Arabian Sea and into India.
  • The presence of such a pipeline could also lead to vital gas supplies being diverted from Europe.
  • A related sub-project of the main Middle East to India pipeline is the re-energising of plans for the Iran-Oman gas and LNG pipeline project.

A huge new Middle East to Asia pipeline that could provide the East with high volumes of reliable gas supplies for decades is being planned. The presence of such a pipeline could also lead to vital gas supplies being diverted from Europe, in which demand for them has dramatically increased to substitute from lost gas supplies after sanctions were imposed on Russia. The announcement of the new pipeline comes just a few weeks after the China-brokered Iran-Saudi Arabia relationship resumption deal that marked a milestone in the new global oil market order, as analysed in my new book on the subject

As at the end of 2021, according to International Energy Agency (IEA) figures, the E.U. imported an average of over 13.4 billion cubic feet (bcf) per day of gas by pipeline from Russia, or around 4.9 trillion cubic feet (tcf) for the year. As well as that, around 5.3 tcf was delivered in LNG form. In sum, Russia accounted for around 45 percent of the E.U.’s gas imports in 2021 and almost 40 percent of its total gas consumption. Germany itself was reliant on Russian gas for around 30-40 percent of its own commercial and domestic gas needs, depending on the time of year. This goes some way to explaining the extreme reticence of several major European countries – most notably, Germany – in imposing any meaningful sanctions on Russian gas supplies, as also analysed in my new book on the new global oil market order. Indeed, the only real flurry of activity within the E.U. during those early weeks after Russia invaded Ukraine in 2022 was aimed at ensuring that Russia did not stop supplying member states with either gas or oil, due to their not being able to pay in the way Moscow preferred. This followed the 31 March decree signed by President Vladimir Putin that required E.U. buyers to pay in roubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended. According to an official guidance document sent out to all 27 E.U. member states on 21 April by its executive branch, the European Commission (E.C.): “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with E.U. law],… E.U. companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.” The E.C. added that existing E.U. sanctions against Russia also did not prohibit engagement with Russia’s Gazprom or Gazprombank beyond the refinancing prohibitions relating to the bank. 

Related: Iraq Oil Output Continues To Fall Amid Turkey Spat

This was the key reason why no energy sanctions of any significance were placed on Russia after its ‘trial run’ invasion of Ukraine in 2014, during which it annexed Crimea. However, following the failure of NATO to do anything substantive to combat Russia’s aggression in Ukraine on 2014, this latest time around the U.S., U.K., and several other of the U.S.’s other global security allies, were determined to finally draw a line across Europe over which it – and its NATO security allies – would not accept further Russian advances. Crucial to these efforts was ensuring new gas supplies for the most energy-vulnerable European countries to substitute for those that would be lost from Russia. The best way to do this in the short term was by securing liquefied natural gas (LNG) supplies. LNG is the most flexible form of gas for buyers, being readily available in the spot markets and able to be moved very quickly to anywhere required, unlike gas sent through pipelines. Unlike pipelined energy as well, the movement of LNG does not require the build-out of vast acreage of pipelines across varying terrains and the associated heavy infrastructure to support it. In essence, LNG supplies are the ‘swing gas supply’ in any global gas supply emergency, just as Europe faced in the first few months after Russia’s invasion of Ukraine in 2022. This is why, as also analysed in my new book on the new global oil market order, the U.S. went to such great pains to ensure new LNG deals for Germany in those early days – most notably from Qatar - and why further gas deals have followed between European companies and various Middle Eastern countries. 

Unfortunately for these plans going forward, the major new gas pipeline being planned will run along a 2,000-kilometre corridor via Oman and UAE through the Arabian Sea and into India. This will allow gas to be gathered in from Oman and the UAE themselves, and from Iran, Saudi Arabia, Qatar, and Turkmenistan. These countries together have, by very conservative estimates, just under 2.9 trillion cubic feet (tcf) of gas reserves - Iran 1200 tcf, Qatar 858 tcf, Saudi Arabia 333 tcf, Turkmenistan 265 tcf, UAE 215 tcf, and Oman 24 tcf. Additionally very threatening for continued supplies of gas (including in LNG form) from the Middle East to Europe is that Qatar is the world’s number one LNG exporter. Oman also has extensive LNG capabilities, which Iran has long been looking to utilise as well.

It is crucial to note here that although there will be one major pipeline running from the Middle East to India in the first instance, several other extensions of this pipeline plan are readily available. As also analysed in full in my new book, finished plans for an Iran-India pipeline and an Iran-Pakistan pipeline – both of which could be extended to China – have long been in place. Starting in the major Iranian port of Chabahar, alternative versions of these plans incorporated pipelines running directly into either Pakistan’s key port of Gwadar, or into one of the major Indian ports in Gujurat. An alternative was that Iranian gas into Gwadar would then be further piped across the mainland into India. Aside from U.S. opposition to these plans, India wanted reassurances from Iran that Chabahar Port was to continue to be regarded as primarily an India-led development. Chabahar remained the most obvious transit alternative to the China-built and operated Gwadar Port in Pakistan, just 75 kilometres away, and a key departure point in the China-Pakistan Economic Corridor. No such assurances were given by Iran, so in 2018 Indian support for that pipeline cooled. Now, though, it seems that China has taken a temporary backseat in the immediate plans for the Middle East to India pipeline, with a senior E.U. energy security source exclusively telling OilPrice.com last week that “it [China] will just wait to move once the pipeline is in place”. 

A related sub-project of the main Middle East to India pipeline is the re-energising of plans for the Iran-Oman gas and LNG pipeline project, also analysed in full in my new book on the new global oil market order. This pipeline plan was part of a broader co-operation deal made between Oman and Iran in 2013, extended in scope in 2014, and fully ratified in August 2015 that was centred on Oman’s importing at least 353 bcf of natural gas per year from Iran for 25 years. The land section of the project would comprise around 200 kilometres of 56-inch pipeline to run from Rudan to Mobarak Mount in the southern Hormozgan province. The sea section would include a 192-kilometre section of 36-inch pipeline along the bed of the Oman Sea at depths of up to 1,340 metres, from Iran to Sohar Port in Oman. This deal was intended to allow for the completely free movement of Iranian gas via Oman through the Gulf of Oman and out into the world oil and gas markets. It would additionally allow for the advancement of Iran’s planned entry into the global LNG market. Iran had long sought to become a world leader in the export of LNG and this ambition remains intact. To this end, Iran had arranged as part of the 2013/14/15 deal with Oman to utilise at least 25 percent of its LNG production facilities in the Qalhat LNG facility. Once converted, the Iranian LNG would be loaded onto the specialised LNG vessels for export, in return for commission payments to Oman. 

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on May 23 2023 said:
    All global gas supply routes lead to Russia. With the new planned gas pipeline via UAE and Oman through the Arabian Sea’ more gas supplies will be diverted from the EU to India and the Asia-pacific region.

    This will force the EU to come begging for cheap and plentiful Russian gas within the next 2 years if not earlier since US LNG exports can hardly satisfy. a quarter of EU gas needs.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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