On Feb. 21, 2014, the Baker Institute hosted a conference that was the capstone for “The Geopolitics of Natural Gas,” a multi-year study directed by Kenneth Medlock, senior director of the Center for Energy Studies at Rice University's Baker Institute; Meghan O'Sullivan, director of the Geopolitics of Energy Project at Harvard University's Kennedy School; and Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis.
Some of the most dramatic energy developments of recent years have been in the realm of natural gas. Large quantities of North American unconventional gas are now commercially viable, changing the strategic picture for the continent and raising the possibility that the United States could become an exporter of natural gas to Asian and European markets. This development has reverberated across the globe, causing shifts in patterns of trade and catalyzing other countries in Europe and Asia to explore their own indigenous shale gas potential. The increased availability of unconventional natural gas is, in turn, putting pressure on longstanding contractual arrangements that underpin the oil-linked gas pricing paradigm. In addition, the heretofore discrete nature of North American, European and Asian natural gas markets is being challenged by increasing opportunities for trade, particularly via liquefied natural gas (LNG), which may lead to strategic shifts, such as the weakening of Russia’s dominance in the European gas market.
Against this backdrop, the Center for Energy Studies at Rice University’s Baker Institute and Harvard’s Geopolitics of Energy Project of the Kennedy School launched a multi-year study on the geopolitics of natural gas. “The Geopolitics of Natural Gas” project brought together more than 15 country experts on major natural gas producing and consuming countries. Each expert assessed the prospects for gas consumption and production in the country in question, based on anticipated political, economic, and regulatory trends. Building on these case studies, participating scholars took part in a workshop designed to formulate states of the world describing different possible futures. This exercise subsequently informed the construction of several scenarios to be run using the Rice World Gas Trade Model so that the economic and geopolitical impacts of various modeled changes could be analyzed.
The modeling approach to global gas markets used in this project highlights the importance of economics and geology in determining the future of natural gas, but, importantly, this study pays particular heed to the geopolitical dimensions of natural gas. It recognizes that the interplay between international politics, security and energy is multi-directional and therefore seeks to:
- Identify the political, economic and geopolitical trends and realities that could frustrate or facilitate increases in global gas consumption and production in the decades ahead.
- Anticipate the impact of these geopolitical realities, their implications for domestic or global gas consumption and production, and how they will affect global gas markets.
- Assess how these changes in the global gas market will then, in turn, influence global politics.
The study is structured in two parts. Part One takes a case study approach, looking at internal and regional dynamics that will affect individual countries’ gas production and consumption over the next 30 years. Part Two presents results from multiple scenarios modeled using the Rice World Gas Trade Model to simulate how politics could change global gas markets — and vice versa.
Part One: Case Studies of Key Gas Producing and Consuming Countries
Case studies have been prepared by experts on 15 countries/regions generally deemed most likely to affect gas developments at a global level — by driving either consumption or production patterns. Each expert has produced a chapter explaining the current political and energy situation and identifying the main drivers of political change and their implications for future energy developments. Case studies have also assessed to what extent energy developments will be shaped by the degree of political stability, projected economic growth, government policy, decision-making structures, the investment climate, international obligations, geography and regional relations.
Many of the case studies are now available online. Subsequent cases will soon be published. The Geopolitics of Natural Gas study includes the following case studies:
- Algeria – The Changing Geopolitics of Natural Gas: The Case of Algeria. Dr. Azzedine Layachi, Professor of International and Middle East Affairs, Department of Government and Politics, St. John's University
- Argentina – Political Economy of Shale Gas in Argentina. Dr. David Mares, Director, Center for Iberian and Latin American Studies and Professor, Political Science, University of California, San Diego; Baker Institute Scholar for Latin American Energy Studies, Rice University
- Australia – The Geopolitics of Australian Natural Gas Development. Dr. Ronald Ripple, Mervin Bovaird Professor of Energy Business and Finance, Collins College of Business, The University of Tulsa
- Europe – The Politics of Natural Gas Development in the European Union. Dr. Andreas Goldthau, Head of Department of Public Policy and Associate Professor, Central European University
- GCC – The Gulf Cooperation Council Natural Gas Conundrum: Geopolitics Drive Shortages Amid Plenty. Amy Myers Jaffe, Executive Director for Energy and Sustainability, University of California, Davis; Jareer Elass, Consultant, Baker Institute; Keily Miller, CES Research Associate, Baker Institute
- India – Natural Gas in India. Difficult Decisions. Dr. Charles Ebinger, Senior Fellow and Director, Energy Security Initiative, Brookings Institution; Govinda Avasarala, former Senior Research Assistant, Foreign Policy, Energy Security Initiative, Brookings Institution
- Iran – Geopolitics of Natural Gas Case Study: Iran. Dr. Suzanne Maloney, Senior Fellow, Foreign Policy, Saban Center for Middle East Policy, Brookings Institution
- Iraq – Natural Gas in the Republic of Iraq. Luay Al Khatteeb, Executive Director and Founder, Iraq Energy Institute
- Japan – The Changing LNG Situation in Japan After March 11. Dr. Ken Koyama, Managing Director, Chief Economist, Strategy Research Unit, The Institute of Energy Economics, Japan
- Mexico – The Twilight of Mexico's State Oil Monopolism: Policy, Economic, and Political Trends in Mexico's Natural Gas Industry. Dr. Isidro Morales, Professor, Monterrey Institute of Technology and Higher Education (ITESM)
- Coming soon. Dr. Rawi Abdelal, Joseph C. Wilson Professor of Business Administration, Harvard Business School
- The Russian Gas Sector: A Political Risk Case Study. Dr. Robert Johnston, Director, Global Energy and Natural Resources, Eurasia Group; Emily Stromquist, Associate, Global Energy and Natural Resources, Eurasia Group
- The Geopolitics of Russian Natural Gas. Dr. Tatiana Mitrova, Head of Oil and Gas Department, Energy Research Institute, Russian Academy of Sciences
- Turkey – Turkey's Energy Policy and the Future of Natural Gas. Dr. Soner Cagaptay, Senior Fellow and Director, Turkish Research Program, Washington Institute; and Tyler Evans, Yvonne Silverman Research Assistant, Turkish Research Program, Washington Institute
- Turkmenistan – Turkmenistan: Real Energy Giant or Eternal Potential? Dr. Martha Brill Olcott, Senior Associate, Russia and Eurasia Program, Carnegie Endowment for International Peace
- United States – Natural Gas in the United States. Dr. Michael Levi, David M. Rubenstein Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change, Council on Foreign Relations
Part Two: Modeling and Analysis
The project has drawn on the findings of the case study authors to create 10 different scenarios that were analyzed using the Rice World Gas Trade Model (RWGTM). Specifically, the RWGTM was used to investigate how upstream investments, international trade and global LNG flows, the role of contracts in natural gas trade, and regional natural gas prices will be affected by emerging economic, regulatory and geopolitical trends. Through the modeling efforts, the study team examined the potential for the continuance of the recent trend toward increased use of spot market indexation for contracted deliveries of natural gas from major suppliers, such as Russia and Norway. In particular, the extent and pace at which contracted flows under oil-indexed terms may or may not become the most effective means of delivering natural gas to large consumers was also modeled — in both the RWGTM and in a working paper by Dr. Peter Hartley examining the value of long-term contracts under shifting market conditions.
The scenarios include, among others, a low oil price scenario, a Middle East stability scenario, a North America LNG export push scenario, a conflict scenario in the East China Sea, and an environmental policy scenario characterized by the regional adoption of CO2 emissions reduction policies and regionally varying policies — from outright bans to stricter requirements at well sites — on shale development. The study also includes a reference case that captures geopolitical, contractual and regulatory constraints that currently exist in the global natural gas market. The reference case establishes the baseline to which all scenarios are compared.
The full analysis of all scenarios and their geopolitical implications, detailed in multiple papers, will be completed and posted on this website in December 2013.
- Coming Soon - “The Rice World Gas Trade Model (RWGTM): Model Description and Status Quo Case” by Kenneth B. Medlock III, James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics and Senior Director of the Baker Institute Center for Energy Studies
- Coming Soon - “Scenario Analysis with the RWGTM: The Geopolitics of Gas and Future Market Outcomes – Part 1" by Kenneth B. Medlock III, James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics and Senior Director of the Center for Energy Studies; Meghan O’Sullivan, Jeane Kirkpatrick Professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project at Harvard University's Kennedy School; and Amy Myers Jaffe, Executive Director for Energy and Sustainability, University of California, Davis
- Coming Soon - “Scenario Analysis with the RWGTM: The Geopolitics of Gas and Future Market Outcomes – Part 2” by Kenneth B. Medlock III, James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics and Senior Director of the Baker Institute Center for Energy Studies; Meghan O’Sullivan, Jeane Kirkpatrick Professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project at Harvard University's Kennedy School; and Amy Myers Jaffe, Executive Director for Energy and Sustainability, University of California, Davis
- Coming Soon - “Scenario Analysis with the RWGTM: The Geopolitics of Gas and Future Market Outcomes – Part 3” by Kenneth B. Medlock III, James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics and Senior Director of the Baker Institute Center for Energy Studies; Meghan O’Sullivan, Jeane Kirkpatrick Professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project at Harvard University's Kennedy School; and Amy Myers Jaffe, Executive Director for Energy and Sustainability, University of California, Davis
- The Future of Long-term LNG Contracts by Peter Hartley, Baker Institute Rice Faculty Scholar and George and Cynthia Mitchell Chair in Sustainable Development and Environmental Economics at Rice University
Topics of Research
Issues explored in this study include:
- Implications of unconventional gas abundance for U.S. energy security and the implications for global gas supply developments
- The impact of unconventional gas in Europe on the pace of supply developments in Russia, Australia, the Middle East and Central Asia.
- The impact of unconventional gas and development of major untapped conventional natural resources from producers such as Iraq, Iran and Turkmenistan on demand for LNG and geopolitical trends that might alter the development and flow of natural gas supplies globally
- The impact of geopolitical constraints on the effect of unconventional gas developments and world natural gas market trends
- The prospects for a fully globalized commodity market for natural gas and the implications for regional pricing, supply trends and early indicators of a market that is moving in that direction
- The impact of global CO2 emissions reduction policies on global natural gas markets
- The effect of unconventional natural gas production in China on global LNG markets, natural gas pricing, and the prospects for Russian gas to Asia
Click here to view the Case Study Protocol.
Click here to view the report of the Scenarios Workshop on the Geopolitics of Natural Gas.
Insights from the study:
- Workshop I: The Changing Geopolitics of Natural Gas: The Rise of Unconventional Gas and Its Implications for Global Natural Gas Markets, Geopolitical Relations and U.S. Energy Security
Houston, TX – March 17, 2011
- Workshop II: The Changing Geopolitics of Natural Gas: The Rise of Unconventional Gas and Its Implications for Global Natural Gas Markets, Geopolitical Relations and U.S. Energy Security
Houston, TX – May 9, 2011
- Workshop III: The Changing Geopolitics of Natural Gas: The Rise of Unconventional Gas and Its Implications for Global Natural Gas Markets, Geopolitical Relations and U.S. Energy Security
Houston, TX – December 12, 2011
- "RWGTM Reference Case and Key Sensitivities," Presentation by Dr. Kenneth B. Medlock III
The Geopolitics of Natural Gas: Scenarios Workshop, Houston, TX - May 1-2, 2012
- The Geopolitics of Natural Gas: Report of Scenarios Workshop
Houston, TX - July 2012
This study is generously supported by Baker Institute Energy Forum Sponsors and ConocoPhillips.
China’s Energy Hedging Strategy: Less Than Meets the Eye for Russian Gas Pipelines
The National Bureau of Asian Research Energy Security Program, February 2015, Amy Myers Jaffe, Kenneth B. Medlock III, and Meghan L. O’Sullivan
Natural Gas Price in Asia: What To Expect and What It Means
Center for Energy Studies Research Paper, February 2014, Kenneth B. Medlock III
US LNG Exports: Truth and Consequence
Faculty Working Paper, August 2012, Kenneth B. Medlock III
The Geopolitics of Natural Gas: Report of Scenarios Workshop
Report by the Baker Institute Center for Energy Studies and Harvard University's Belfer Center, July 2012
The Status of World Oil Reserves: Conventional and Unconventional Resources in the Future Supply Mix
Faculty Working Paper, October 2011, Amy Myers Jaffe, Kenneth B. Medlock III, and Ronald Soligo
New Alignments? The Geopolitics of Gas and Oil Cartels and the Changing Middle East
Faculty Working Paper, Songying Fang, Amy Myers Jaffe, and Ted Temzelides
Shale Gas and U.S. National Security
U.S. Department of Energy
Impact of Shale Gas Development on Global Gas Markets
Natural Gas & Electricity Journal, April 2011, Kenneth B. Medlock III