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Pipelines or Pipe Dreams? Lessons from the History of Arab Transit Pipelines

By Stevens, Paul | The Middle East Journal, Spring 2000 | Go to article overview

Pipelines or Pipe Dreams? Lessons from the History of Arab Transit Pipelines


Stevens, Paul, The Middle East Journal


The article outlines a history of transit oil and gas pipelines in the Arab world over the last 70 years. In particular, it seeks to understand the causes behind the generally poor performance of the pipelines and tries to examine the economic basis for this. The purpose is to find lessons and an analytical framework which may inform current discussions of such pipelines in relation to the development of Caspian hydrocarbons and gas exports from the Persian Gulf.

In recent years, there has been a renewal of interest in transit oil and gas pipelines. These are defined as pipelines which must cross another's territory to get to market.l This interest, arising from Caspian hydrocarbons and gas exports from the Persian Gulf, has generated analysis which suffers from two serious failures. It either ignores the poor performance of transit pipelines in the past or, where problems are analyzed, the concentration is exclusively on politics. Both ignore the lessons of history. An earlier study by this author on the experience of such lines in the Middle East concluded that their operating experience had been abysmal in terms of interruptions to flow.2 These interruptions had been driven by economic factors--disputes over transit fees-as much as by political factors.3

This article updates that assessment of the historical experience. In particular, it includes a later transit line, Transmed, whose experience, in contrast to the trend, shows an exemplary operating record. The objective of the article is to extract what historical lessons may be learned and applied to plans relating to Caspian hydrocarbons and Persian Gulf gas. Much of the poor performance to be described can be attributed to economic features of the transit country. These features suggest the probability of a forced renegotiation of transit fees once the line is operating. They help to identify "good" transit countries which will not cause disruption and "bad" transit countries which will. This check-list allows analysts to assess, in economic terms, some of the routes currently under discussion. This article hopes to achieve two objectives--the creation of a check-list to provide a transparent agenda for further analysis and the flagging of the neglected importance of economic problems for transit. The article concludes by considering possible solutions to the general problems of transit.

THE RENEWAL OF INTEREST IN TRANSIT PIPELINES

Two recent developments have revived interest in transit pipelines: the potential of the hydrocarbon resources of the Central Asian Republics of the former Soviet Union, and the possible export of gas from the Persian Gulf into the growing energy markets of Asia.4

The hydrocarbon resources of the Central Asian Republics are large, though exactly how large is debatable. The United States Energy Information Agency estimated proven oil reserves at 15-29 billion barrels (bb) with possible reserves of as much as 163 bb.s The same study suggests proven gas reserves of 236-337 trillion cubic feet (tcf). In a similar vein, the International Energy Agency suggests proven oil reserves of between 15-40 bb with 70-150 bb as possible.6 To put this in perspective, at the end of 1997, proven oil reserves in the US were 29.8 bb and in Europe 20.2 bb while proven gas reserves in the US were 166.5 tcf and in Europe 196.5 tcf.7 There is significant debate about the legal status of the Caspian Sea (whether it is to be treated as a sea or lake) around which much of the hydrocarbon reserves lie.8 Without wishing to enter that debate, it is clear the Caspian is a lake in the sense that there is no access to the high seas. Exports of oil or gas in any volume will require transit pipelines and there has been a proliferation of suggested routes together with discussions of the various possible problems.9

Transit pipelines are also central to consideration of possible gas exports from the Persian Gulf which account for 34 percent of global gas reserves but only seven percent of global gas production.

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