Energy in Crisis: Key threats facing the gas industry

Similar to oil, gas serves as a crucial energy source used globally. Over the past two decades, worldwide gas usage has risen, reaching 3.94 trillion cubic meters in 2022.

This increase can be partially attributed to its lower carbon footprint compared to other fossil fuels, prompting many governments to encourage its usage.

Due to the extensive worldwide distribution of supplies and infrastructure, the gas industry encounters a wide range of security challenges.

Status of the global gas market

After a series of turbulent events, like the Russian invasion of Ukraine in February 2022, the gas market situation in 2023 has taken a positive turn and stabilised.

This turnaround can be attributed to well-stocked storage reserves, reduced demand in both European and Asian import markets, the adoption of gas-to-coal switching practices in the power sector due to earlier high prices, and decreased gas usage in energy-intensive industries.

Additionally, milder weather during this period contributed to the alleviation of demand pressures. However, as we transition into the colder months, demand is expected to rise again, and major gas players like Russia may attempt to disrupt supply to gain the upper hand in the war.

War risk: Historic gas infrastructure

When looking at the security challenges associated with the well-documented case of Russian gas, there clearly are significant causes for concern.

Actions such as the imposition of sanctions against Russian gas by the US and UK, as well as Germany's suspension of the Nord Stream 2 construction, resulted in a decrease in Russian gas spot sales to Europe towards the end of 2022.

This reduction occurred despite the EU refraining from imposing sanctions specifically on gas, given its reliance on Russia for approximately 40% of its gas supply.

Nevertheless, Russia themselves took steps to reduce gas flows to the EU. Consequently, this chain of events led to an immediate energy crisis and record-high natural gas prices within the EU.

In the context of the ongoing conflict, Russia has demonstrated a preference for employing gas supply as a geopolitical tool to exert pressure on Western nations. Beyond employing soft-power tactics, there have been instances of physical attacks on gas infrastructure, likely linked to the conflict.

One such incident occurred in September 2022 with the sabotage of the Nord Stream pipeline. This act involved bombings and underwater gas leaks affecting both the Nord Stream 1 and Nord Stream 2 natural gas pipelines, which are used to transport natural gas from Russia to Germany via the Baltic Sea.

These pipelines are predominantly owned by the Russian state-owned gas company, Gazprom, and the identity of the perpetrators remains unconfirmed.

Following this attack, European gas prices surged by 12%, despite Nord Stream 1 not having delivered gas since August and Nord Stream 2 having never been operational. This reaction reflects the general anxiety surrounding gas prices in the region, tied to the conflict.

New worldwide gas infrastructure

When analysing the planned gas infrastructure, highlighted in orange here by Global Energy Monitor, these are found spread across various regions in Africa and South America.

Some of these regions are characterised by higher risks of instability stemming from conflicts or civil unrest.

Such instability can potentially disrupt the operational continuity of the proposed infrastructure, a subject that will be explored further in the remainder of this series.

War and terror risks: West Africa

A specific proposed pipeline is one known as the Nigeria-Morocco gas pipeline, intended to establish a new energy supply route for both West Africa and Europe.

This extensive 5,600km pipeline aims to deliver gas to 15 Economic Community of West African States (ECOWAS) countries, including Nigeria, Benin, Togo, Ghana, Côte d’Ivoire, Liberia, Sierra Leone, Guinea, Guinea Bissau, Gambia, Senegal, and Mauritania, ultimately reaching Morocco.

Importantly, this part of the world is currently experiencing turmoil, marked by recent coups in Niger and Gabon in July and August 2023. This unrest comes after a relatively calm period of about two decades.

Although the proposed pipeline does not pass through these coup-affected countries, Niger is a member of ECOWAS and Gabon is not geographically that far from the community, despite not being a member itself.

Consequently, there is a legitimate concern that these coups could potentially trigger a chain reaction affecting other nations in the region. The response from the community towards Niger has largely avoided military intervention, instead resorting to economic sanctions and power cuts, which may empower military leaders to seize power.

Prior to the aforementioned incidents, there were further coups or coup attempts in ECOWAS member countries, specifically Guinea Bissau and Gambia, both taking place in 2022. It is worth noting that both nations are located along the path of the pipeline.

While potential coup leaders themselves may not necessarily target the pipeline, coups tend to breed increased instability, creating fertile ground for militant and criminal groups to thrive. These groups may pose a threat to critical infrastructure.

With the rising trend of coups in this region, the risks associated with the proposed pipeline are also on the rise.

Civil unrest: South America

Civil unrest poses another security challenge for the gas industry.

One of the key countries for both active and proposed gas projects is Argentina. This country has emerged as a significant player in the global shale gas market in recent years, thanks to its substantial reserves.

In fact, Argentina boasts the world's second-largest shale gas reserves, trailing only behind the United States. Notably, as of May 2023, natural gas dominates Argentina's total primary energy mix, accounting for 55%, according to data from the IEA.

However, Latin America, including Argentina, has witnessed a surge in civil unrest. In June 2023, a wave of protests erupted in Argentina's Jujuy Province, triggered by constitutional amendments. These demonstrators temporarily occupied the Jujuy legislature and set part of it ablaze.

The gas industry in Argentina has also encountered disruptions due to civil unrest. In February 2023, near General Acha in La Pampa, a group of workers at the Nestor Kirchner gas pipeline staged a demonstration to demand improved working conditions. They blocked Route 9 leading to General Acha, burned tires, and initiated a strike, seeking better workspaces and reduced working hours.

For businesses operating in these regions, these incidents of civil unrest can pose significant challenges, potentially disrupting supply chains, operations, and investments. As such, those looking to enter the market here must take note of the increasing trend of civil unrest and implement robust risk mitigation strategies to protect themselves.

Given that gas continues to serve as a crucial energy source on the global stage, it becomes increasingly imperative to acknowledge the interconnectedness of geopolitics, security, and energy.

The above sections demonstrate the multifaceted security challenges that the gas industry faces, ranging from political violence concerns such as war, coups, and civil unrest to economic issues like sanctions. These challenges have the potential to disrupt supply chains and affect the operational continuity of critical infrastructure.

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Each week, our Threat Intelligence team will be analysing a different energy industry as part of our Energy in Crisis series (including Nuclear, Wind, Solar, Hydroelectric and more). Follow us here or on LinkedIn to stay up-to-date with the latest analysis.