The Effects Of U.S. Sanctions On Iran’s Natural Gas Projects

Iran holds the second largest natural gas reserves in the world. Despite this advantage, the country controls less than one percent of the world’s natural gas market. Nevertheless, Iran is the third largest gas producer and, over the past few years, has focused on increasing its share of the global gas market. By the end of 2017, according to the National Iranian Gas Company, Iran was producing 800 million cubic meters per day. Iran’s short-term intention is to increase the volume of gas available for export by 365 million cubic meters per day by 2021.

Exporting natural gas takes a back seat in terms of priorities to more immediate economic considerations like boosting investment into oil fields, satisfying domestic consumption, and expanding gas-based industries. Iran has 50 independent gas fields, of which currently only 23 are developed and producing. Iran’s largest gas field at South Pars, with reserves of 14 trillion cubic meters, accounts for around 40 percent of the country’s gas reserves. In 2017, Iran produced 130 billion cubic meters of natural gas from this field. Iran plans to complete Phase 11 in the next two years so that it can produce about 180 billion cubic meters of natural gas annually. But based on estimates from the Ministry of Oil, South Pars will experience a significant drop in pressure, known as the “dew point,” probably around 2023.

In 2015, after the signing of the nuclear agreement, Iranian officials repeated calls for an injection of around $100 billion in foreign investment into the country’s oil, gas, and petrochemical sector. Most of Iran’s oil wells have entered the second half of their lives. With 8 percent of oil production dropping automatically year on year, Iran desperately needs technology and capital from foreign countries just to stabilize its oil production. The U.S. ban on companies engaging in dollar deals with Iran, however, means that large financial institutions risk heavy fines from the Treasury Department, thus hampering any progress in Iran’s ability to gain such investments through formal and legal restrictions.

Iran signed major agreements with foreign companies in the natural gas sector, including contracts for the development of the 11th phase of the South Pars field with both French and Chinese partners designed to increase the production capacity of the field by 56 million cubic meters per day. After the U.S. withdrawal from the nuclear deal, however, the French company Total abandoned the contract, and China National Petroleum Corporation officials stated that only they would remain in Iran’s natural gas sector. However, Chinese companies do not have a good record in Iran’s oil industry. For instance, several Chinese companies have delayed work in the Azadegan Fields for no good reason. Also, Chinese firms with interests in the United States or in U.S.-funded projects may be reluctant to invest in Iran.

According to Mohammad Hassan Adeli, former secretary general of the Gas Exporting Countries Forum, sanctions are one of the main reasons for Iran’s failure in its gas export policy. However, other factors include the long process of achieving consensus on big decisions in Iran and a prevailing opinion among Iranian policy makers that gas should only be consumed domestically or turned into petrochemical products.

Iran has plans to increase its export of natural gas to other countries. For instance, Iran and Pakistan began work on a pipeline in March 2013 that would send 1.5 million cubic meters per day natural gas to Pakistan. However, US sanctions against Iran may force Pakistan to seek a less controversial alternative. Iran is also eyeing the European market. But gas exports to Europe face two major problems. Firstly, traditionally, Russia has dominated this market and Iran cannot hope to play as large a role as Russia in supplying gas to Europe. Second, in order to export Iranian gas via pipeline to Europe, Iran must secure transit through several intermediary countries.

Given recent developments in the energy market—not to mention the sanctions imposed by the Trump government—attracting foreign capital and technology to the Iranian energy industry, especially the natural gas industry, carries none of the optimism of previous years.

Foreign private companies have enough financial resources to make a splash in the Iranian market. But attracting foreign investment requires a suitable legal framework and an efficient and fast decision process, as well as political stability. In addition, Iran needs to revise its foreign policy and solve its issues with neighbors as well as the West. With neither foreign technology nor capital, Iran will not be able to produce more oil and gas to export to neighbors, let alone export to the EU.

At present, major natural gas producers such as Russia and the United States have made huge investments in their own natural gas sectors. If these major natural gas producers control the regional and world gas markets, Iran is likely to struggle to find importers. Boosting Iran’s share of the market from one percent to 10 percent, as the government would like to do, is possible only with foreign investment, which requires a reduction of political risk in the country and an effort to eliminate tension with neighboring countries.

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The Future Of Iran-Pakistan Energy Relations

Energy relations form one of the main pillars of Iranian-Pakistani relations. In 1990, increased domestic demand for natural gas led Pakistan to begin negotiations to export gas from Iran. India’s growing energy demand led to joint support for a 2,700-kilometer “Peace Pipeline” that would allow India and Pakistan to import Iranian resources. According to the initial agreement, 1,100 kilometers would be constructed in Iran, 1,000 kilometers in Pakistan, and 600 kilometers in India. A projected 150 million cubic meters of gas would be exported daily to India and Pakistan, with 90 million cubic meters for India and 60 million cubic meters for Pakistan.

In 2011, however, due to U.S. pressure, India withdrew its support for the Peace Pipeline. This was bad news for Iran, which hoped that the pipeline would help develop and expand its friendship and cooperation in the region. Nevertheless, Iran completed the required pipeline to deliver natural gas from South Pars to the Iran-Pakistan border by December 2014. But Islamabad has not taken any practical steps to keep to its end of the deal.

Pakistan’s former Ministry of Foreign Affairs spokesman has stated that in order to achieve long-term goals of regional stability, Pakistan’s national interest require new energy transit projects. Pakistan supports the economic strengthening of the region and has stated that the energy and energy sectors are important factors in realizing regional political and economic goals. But it has increasingly looked to places other than Iran to develop these resources.

One of Pakistan’s alternatives to diversifying energy resource is the TAPI project, a U.S.-backed rival to the Peace Pipeline proposed back in 1990 to deliver Turkmen natural gas to India via Afghanistan and Pakistan. India joined the project in 2008. The leaders of the four countries signed an implementation contract in December 2015, and practical work finally began in 2016. The first gas will start to flow in early 2020. The project will cost an estimated $7-9 billion and will transfer 90 million cubic meters of gas per day to these countries.

Liquified natural gas (LNG) now forms 50 percent of Pakistan’s energy basket, and this will increase in coming years due to Pakistan’s new agreements with LNG suppliers. In February 2015, Pakistan signed a $21 billion deal to buy 500 million cubic feet of gas a day from Qatar. The arrival of Qatari gas will alleviate but not solve Pakistan’s energy crisis. So, Pakistan is looking elsewhere. Because of the shale gas revolution, the United States became an energy exporter by 2017 and plans to send about 3 million cubic feet to Pakistan. The Russian energy giant Gazprom is also considering the possibility of supplying 5-7 million tons of LNG annually to Pakistan. In July 2014, Pakistan and Gazprom signed an agreement to construct three LNG terminals, and the first shipment arrived in July 2015. Pakistan and Azerbaijan also signed deals in 2016 for the latter to supply electricity, crude and refined oil products, and both LNG and liquefied petroleum gas (LPG). The Azerbaijani state oil company SOCAR will begin delivering LNG to Pakistan in the coming months.

At present, Pakistan lacks 4,000-7,000 megawatts of the energy it needs. Iran is a natural place to turn. But the cost of Iran’s gas is too expensive for use in Pakistan’s power plants. The electricity generated from Pakistan’s power plants, mainly located in Baluchistan province, costs $3.5 per one million units, while the figure for Iran’s gas is $12. Increasingly Pakistan is looking east. Thanks to the China-Pakistan economic corridor, Islamabad will soon be able to generate electricity from coal-fired power plants and import electricity from places like Turkmenistan. The larger goal of the China-Pakistan Economic Corridor project is to turn the Gwadar Port into an energy hub in the region. Islamabad is also trying to address part of its electricity shortage through other projects such as the Casa 1000 project, which is designed to boost the electricity trade between the Central Asian countries of Tajikistan and Kyrgyz Republic and the South Asian countries of Afghanistan and Pakistan.

Iran needs to rely on energy diplomacy to maintain regional markets and especially to reduce tensions with neighbors, thereby paving the way for advanced economic benefits. Pakistan is investing in renewables and planning to increase the share of renewables in its national energy basket with the construction of a hybrid solar-wind energy system to bring energy to rural areas. If Pakistan can attract foreign capital and technology to build required energy infrastructure (such as LNG terminal and pipelines), it will require less Iranian natural gas and electricity, instead relying on others to make up the shortfall. U.S. sanctions against Iran will be another factor influencing Pakistan’s preference for energy partners.

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Washington boosts LNG with Iran in sanctions crosshairs

The shale gas revolution has had a staggering effect on the world energy market, shifting many prior assumptions regarding the geopolitics of energy.
Whereas in 2000 and the first years of the new millennium, shale oil and gas accounted for just one percent of all fossil fuels produced in the United States, the country has now moved towards energy self-sufficiency and is taking on the role of an exporter.

Whereas the Obama administration was a major force in fostering this development as a means of freeing the country from foreign dependency through diversification, in tandem with increased green energy supplies, the Trump administration seems to have sought to focus on energy in a more traditional approach.

The shale gas revolution and consequent US energy boom finally meant that a static fact of world energy geopolitics, – ie: that the US was dependent on oil mainly imported from the Middle East – could be cast aside. The US is now energy self-sufficient and free to export Liquefied Natural Gas to neighbours and allies around the world, and thus has added to Washington’s political flexibility.

The uptick in gas production in the US has already decreased LNG prices in the EU and Asia and thus presents a challenge to the old energy order

Not surprisingly, this turn of events is being monitored closely by other energy exporters.

The US is already using its energy exports to reduce the EU’s dependency on Russian gas, while exerting pressure on its allies to see it as an alternative to Iranian natural gas.

The uptick in gas production in the US has already decreased LNG prices in the EU and Asia and thus presents a challenge to the old energy order. In terms of US national security then, the energy boom can be examined from two perspectives, first, its implications for US energy security and second, its implications for the wider field of international relations and its geopolitics.

 

US withdrawal from the Iranian nuclear deal 

Iran’s economy and energy sector has been devastated by the US and EU sanctions brought against it due to Iran’s former attempt to build a nuclear programme. Sanctions have not only scuppered Iran’s chances of success in achieving its energy goals but also have forced Iran to become more proactive in consolidating regional relations.

Since Washington’s departure from the JCPOA agreement, energy companies who had only just began to consider re-entering Iran have withdrawn in anticipation of further sanctions. Few international banks or financial institutes are willing to participate in energy projects in Iran under such conditions.
The US is interested in reducing Iran’s role in regional and global energy markets, with Washington often declaring a wish to bring Iranian oil production down to zero. It is a fact that American sanctions against Iran’s energy sector have vastly reduced the country’s production capacity. US sanctions have also wrought severe harm in terms of technology and finance.

The US plans to increase LNG exports to countries which depend on Iranian hydrocarbons in an attempt to wean these countries off their reliance. But some analysts believe the US oil and gas sector is unlikely to gain Iran’s share of the market, as technically, Iran’s export oil grades are heavier and sourer than the light, sweet crude exported from the US.

 

Following the US withdrawal from the treaty, the country further cut imports of oil from Iran. Japan now imports 5.5 percent of its oil from Iran, according to the Japanese Ministry of Economy and Trade. In August, Japan was receiving 17,775 barrels per day and bought 3.39 million barrels of crude in one month.

Japan called for an exemption from the US embargo on Iran, which was granted by the Trump administration – but only for six months. Part of Iran’s share of oil is expected to fall victim to an influx of LNG exports and US gas condensate onto Japan’s market. Sanctions against Iran’s energy industry have not only reduced Iran’s oil and gas production capacity, but also reduced Iran’s share of the global energy market. The rising lack of investment in the Iranian oil and gas industry is one particularly immediate result of renewed sanctions.

Reducing oil production capacity and, consequently, reducing Iran’s oil export potential will force Iran to find loans and facilities from banks and global financial institutions in order to develop its facilities – yet it is clear that new US sanctions will challenge Iran’s ability to retain much of its oil production capacity regardless.

Given the increase in natural gas producers and LNGs on the market, the US energy boom provides a good opportunity for Iran’s rivals – not least the US itself – from moving in on Iran’s share of the regional and global energy market.

The increase in US oil and shale gas production has made Iran more pressured to find new markets, yet the country does not have the capacity to produce LNG, thus competing with the US, and it is unclear when the capital and technology needed to complete its LNG project units will be provided.

The US superiority in terms of advanced technology, research, investment, and diplomatic reach ensure it will retain a high position in the world energy market, while Iran will likely flounder further. If Iran and the US agree on current political and security problems, Iran may gain the foreign capital and technology needed to recover some of its oil and gas production capacity.

Energy continues to play an important role in US foreign policy, with implications not only on relations with designated rivals but also allies across the world.

Energy exports play a key role in US relations with its neighbours and allies, and are a key tool in fostering and furthering relations with others. Energy exports as a means of expanding relations and helping US allies in South Asia and Europe are sure to lead to interesting geopolitical developments, and US LNG exports are most likely to be effective in reducing Iranian oil exports to Japan and South Korea.

Turkey and India


Turkey is a major purchaser of Iranian natural gas. Turkey has huge investments in LNG storage facilities and plans to increase its share of LNG in the domestic energy market. In 2015, Turkey began to import LNG from the US, and is now the second-largest importer of US LNG in Europe.

An increase in US and Qatari LNG – alongside new natural gas transit projects such as TANAP and the Turkish Stream – means that Iran may be largely sidelined by Turkey in the near future. Similarly, India has also signed a 20-year agreement to be supplied with US LNG, also ensuring a reduction of Iranian supplies to the Indian energy market over a similar period.

South Korea 

Seoul is one of the main customers of Iranian gas condensate. More than 55 percent of Iran’s gas condensate is exported to South Korea. According to official statistics from the Ministry of Oil, Iranian gas condensate exports in 2017 numbered 428,000 barrels per day on average.

Since the US withdrawal from the nuclear deal, major Korean companies importing Iranian oil and gas condensate have cut imports from Iran. In the first six months of 2018, the Hanwa Total Petrochemical Company, the largest importer of Iranian gas condensate, imported 15.92 million barrels from Iran, but since August has reduced its imports to one-third, in favour of supplies from Qatar and the United States.


Japan

Japan is another main consumer of Iranian oil in East Asia. According to the Japanese Petroleum Association, in 2017 the country imported 172,216 bpd of oil from Iran, down 24.2 percent from the previous year. Iran’s oil accounted for 5.3 percent of total oil imports to Japan’s refineries in 2017.

Japan called for an exemption from the US embargo on Iran, which was granted by the Trump administration – but only for six months

Following the US withdrawal from the treaty, the country further cut imports of oil from Iran. Japan now imports 5.5 percent of its oil from Iran, according to the Japanese Ministry of Economy and Trade. In August, Japan was receiving 17,775 barrels per day and bought 3.39 million barrels of crude in one month.

Japan called for an exemption from the US embargo on Iran, which was granted by the Trump administration – but only for six months. Part of Iran’s share of oil is expected to fall victim to an influx of LNG exports and US gas condensate onto Japan’s market.

Sanctions against Iran’s energy industry have not only reduced Iran’s oil and gas production capacity, but also reduced Iran’s share of the global energy market. The rising lack of investment in the Iranian oil and gas industry is one particularly immediate result of renewed sanctions.

Reducing oil production capacity and, consequently, reducing Iran’s oil export potential will force Iran to find loans and facilities from banks and global financial institutions in order to develop its facilities – yet it is clear that new US sanctions will challenge Iran’s ability to retain much of its oil production capacity regardless.

Given the increase in natural gas producers and LNGs on the market, the US energy boom provides a good opportunity for Iran’s rivals – not least the US itself – from moving in on Iran’s share of the regional and global energy market.

The increase in US oil and shale gas production has made Iran more pressured to find new markets, yet the country does not have the capacity to produce LNG, thus competing with the US, and it is unclear when the capital and technology needed to complete its LNG project units will be provided.

The US superiority in terms of advanced technology, research, investment, and diplomatic reach ensure it will retain a high position in the world energy market, while Iran will likely flounder further. If Iran and the US agree on current political and security problems, Iran may gain the foreign capital and technology needed to recover some of its oil and gas production capacity.
Energy continues to play an important role in US foreign policy, with implications not only on relations with designated rivals but also allies across the world.

www.alaraby.co.uk/

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Iran’s joint oil fields could resolve regional tensions

It is common for oil and gas fields to be joint-owned by two or more countries, which often presents various challenges. There is a particular fervour over the need to focus on extracting from such fields, with international energy companies often invited to vie for generous extraction contracts.Iran shares 26 oil and gas fields with its neighbours yet, due to a lack of technological and financial investment over the past years, Iran has been unable to extract a competitive amount of oil from such fields. This has led to their exploitation by Iran’s neighbours. Studies show that around 20 per cent of Iran’s recognised oil reserves and 30 per cent of its natural gas reserves are in joint fields.

 

So far, Iran has only been able to procure from ten of these 26 fields. Despite an increase in productivity in these fields – most notably in the South Pars, in the Persian Gulf – the Rouhani Administration has failed to acquire the capital and foreign technology needed to compete with, let alone acquire an edge over, neighbours in terms of procurements.

 

The majority of Iran’s joint oil fields are located on the Iraqi border – Iran shares at least five oil fields with Iraq. Iraq, for its part, has a seven-year plan to increase oil production capacity and reach 1.2 million barrels per day (bpd). Its focus has been on those fields it shares with Iran and, in 2010, the Iraqi government invited Iran to invest in joint fields with the aim of increasing production and developing an equal production capacity.

 

However, Iran was unable to invest more in these joint fields due to a lack of financial resources. During the period in which heavy sanctions were placed on the Iranian energy sector, Iraq produced 295,000 bpd from joint fields with Iran, yet Iran was able to produce a mere 130,000 bpd in the same period. Iraq also managed to sign agreements with major international oil companies to increase its share from joint fields with Iran. Iraq revised oil contracts and added new conditions in order to attract oil companies, offering increased benefits in return for technological know-how and investment. Iraq’s new contracts are more attractive for oil companies, while the fields themselves are geologically favourable for procurement. Iraq has a program to increase oil production from joint areas shared with Iran.

Iran has no production capacity in its fields in the Caspian Sea, where it has two oil fields shared with Azerbaijan and Turkmenistan. Both countries plan to increase production from these fields and Iran will be not able to attract the foreign technology and capital needed to benefit due to US sanctions.

Qatar has also become a major exporter of liquefied natural gas, with a lot of investment in foreign technology and gas production focused on the South Pars. Given that the South Pars field has been Iran’s top priority, over the past five years Iran has at least succeeded in increasing procurement through investment here. In March 2017, Iran drew a competitive 250,000 bpd from the South Pars, with Qatar drawing 300,000 bpd over the same period.

Iran and Saudi Arabia share four oil and gas fields. By 2017, Iran’s oil production from the Forouzan oil field – also in the Persian Gulf – numbered between 38,000 to 40,000 bpd, while the Saudi side has far outstripped its rival with a production capacity of 400,000 bpd from this field. Similar imbalances are apparent in all shared fields in this area.

 

Joint oil and gas fields are important for all countries in the region, with all countries which share oil and gas fields with Iran gaining billions from their procurement. The US withdrawal from the JCPOA (Joint Comprehensive Plan of Action, more commonly known as the Iran nuclear deal) has motivated many regional rivals to accelerate their activities further. Since major foreign oil firms have abandoned Iran in response to the now-ineffective agreement, these firms have similarly sought activities elsewhere in the region. Unconfirmed reports so far state that around $6 billion worth of gas has thus been lost to competitors. Any delay in the development of joint fields will thus cause irreparable losses for the country. Experts warn that any delay in signing contracts for foreign investment will hinder the development of joint fields and will help the neighbouring states to plunder Iranian oil reserves.

 

Cooperation between Iran and neighbouring Arab countries in the development of plans for joint fields could provide the basis for increasing security and stability in the region. Moreover, foreign investments are important for Iran in recovering its oil and gas production capacities. Iran’s huge oil and gas reserves can play a key role in the world energy market yet, as expected, with the withdrawal of the United States from the nuclear agreement the Iranian energy industry faces yet more challenges in attracting foreign investment and technology. After the removal of sanctions, Iran plans to create conditions for attracting foreign investors by drafting new oil contracts. Iran has repeatedly stated that it needs $2 billion of foreign investment to revive its oil and gas production capacity.

 

Considering developments in the energy market and US sanctions, attracting foreign investment and technology to the Iranian energy industry will be tougher than ever. Achieving the goals of the country’s Sixth Development Plan and Twenty-Year Development Plan is possible only with foreign investment, which requires a reduction of political risk in the country. In the event of a reversal of fortunes in terms of foreign policy and the provision of other requirements for foreign companies, capital can be expected to pour in – particularly from Russian and Chinese companies.

 

A change of attitude in foreign policy and an attempt to eliminate tensions with neighbouring countries will be an important step towards attracting foreign investors. An increase in the oil and gas production capacities of the country is a short and mid-term priority for Iran’s Oil Ministry. Yet Iran must resolve political tension with its neighbours and also negotiate with the West to if these goals are to become workable.

Iran’s joint oil fields could resolve regional tensions

 

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Iran’s Regional Electricity Hub Plan

Despite its huge oil and gas reserves, Iran has been unable to play an important role in regional and international energy market. The limitations placed on its industry, the high growth of annual domestic consumption, and the general disruptions caused to oil exports have all caused consternation among policymakers, especially in the absence of a broad, multi-tiered strategy. Iran needs to promote a smarter energy and foreign diplomacy if it wishes to increase regional cooperation and export electricity to generate the funds necessary to shift toward renewables. Any future sanctions against Iran’s energy sector would have little effect if the country increased the role of renewables in its energy basket. An improved investment climate and improved relations with neighbors would help Iran attract foreign capital and the technological know-how to achieve this goal.

 

Exporting electricity is better than exporting raw materials such as natural gas. At present, Iran produces a daily amount of 700-800,000 cubic meters. With the completion of five phases of the South Pars Field, the country could increase production by 150,000 cubic meters before March 2019. Its huge natural gas reserves allow Iran to use natural gas to generate electricity to export to neighbors.

 

According to 2018 statistics released by the Energy Ministry, Iran exported electricity to seven neighbors. In 2017, Iran ranked fourteenth among the world’s largest electricity suppliers, as well as constituting one of the countries with the lowest rates of accidents in the power sector. At present, Iran exports 12 billion kilowatt-hours of electricity, while importing around 4 billion kilowatt-hours of electricity annually. This means earnings of anywhere between $900 million and $1 billion per year. Iran is interested in drawing up long-term contracts to increase elasticity with Afghanistan, Pakistan, and Iraq, as according to Iranian officials, these countries are also interested in boosting electricity imports from Iran. For the first time in Iran’s history, the Iranian government has recently allowed foreign companies to export part of the electricity generated in the country to attract more foreign investments in renewables,

 

During the period of U.S. and EU sanctions against Iran’s energy sector, Iranian oil and gas production capacity dropped dramatically, causing decision makers to reconsider renewables in the future of the country’s energy basket. Presently, renewable energy represents less than 1 percent of electricity production, along with about 6 percent coming from hydroelectric. The government has insisted, at least on paper, that boosting renewables is a priority.

 

Hamid Chitchian, Iran’s former energy minister, has also declared that Iran’s energy diplomacy should focus on expanding electrical cooperation with neighbors. Post-sanctions Iran must apply changes to the configuration of its electricity generation, transmission, and distribution. According to the former minister, “Iran’s main priorities for the post-sanction era include use of modern technologies, plant efficiency, smart electrical grids, reopened credit lines, and foreign investment in the power industry.”

 

Although Iran’s exports of electricity in the region outweigh its imports, the country still hasn’t realized Article 60 of its Sixth Development Plan, which declares the country’s aim to become a regional electricity hub. Article 60 of the Sixth Plan for Economic Development demands steps be taken to establish a regional electricity market from the first year of the program. Iran’s geographical situation and electricity transit systems give it the perfect opportunity to connect to other markets in Russia via Azerbaijan, Europe via Turkey, and the MENA region through Iraq.

 

However, the active involvement of the private sector and the encouragement of foreign investors will be a pre-requisite for the construction of power plants and the development of electricity transmission networks.

 

From a political and security perspective, electricity exports, in contrast to conventional gas exports, could promote greater connectedness to the region and neighboring countries.

 

Currently, Iran has an electrical connection with all neighboring countries (except for Gulf states). In addition, the presence of expert and skilled human resources in Iran and high levels of self-reliance in the power industry and the construction of electrical equipment in the Middle East and Central Asian region are a relative advantage.

 

As part of the Paris agreement, Iran has voluntarily committed itself to installing the means for generating 7,500 megawatts of renewable energy by 2030. Iran has also passed new laws and regulations aiming to attract more foreign investment and technology in electricity generation.

 

A look at price changes applied to the country’s gas and electricity exports in recent years shows that the price of gas is more dependent on the price of oil than the price of electricity, and therefore revenues from electricity exports are more stable than gas-export earnings.

 

Iran can and should aim to become an energy hub for the region, as it is able to receive cheap electricity from Turkmenistan, Tajikistan and other countries to export to more wealthy buyers in Turkey, Iraq, the UAE, and Pakistan, which bid for electricity at a significantly better price. According to Iranian officials, Iran’s growing energy relations with neighbors have helped it to develop the infrastructure needed to expand its electricity export destinations and put it in a position to realize its goals. However, vast improvements are needed to the transport infrastructure and connectivity of countries of the region, as well as the development of maternal industries, such as the electricity industry and energy exports.

 

Still, after more than a decade, Iran has not put forward any specific operational plans for improving the conditions of the country to become the hub of the region. The failure to develop this infrastructure means that renewed sanctions against Iran’s energy sector will bring major challenges. All the foreign firms once active in Iran’s oil and gas fields, as well as any foreign energy companies that have signed agreement with Iran, left the country after the U.S. withdrawal from the Iran nuclear agreement. Iran signed an agreement with Turkey’s Unit International to build a number of 5,000 megawatt power plants, but progress has stalled. Iran hopes that foreign capital and technology will produce more natural gas for electricity generation and greater export elasticity with neighbors mean that it may finally get back on its feet in the energy market. Iran must decrease domestic natural gas consumption and try to renew electricity infrastructure if it wishes for any chance of success in the regional electricity market. However, the main obstacle to this will undoubtedly by foreign policy and negotiating solutions with neighbors, not to mention the interlinked issue of attracting foreign investment.

 

https://lobelog.com/irans-regional-electricity-hub-plan/

 

 

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The Challenges and Opportunities of Iranian LNG Projects

Over the past few decades, the share of natural gas in the global fuel basket has grown considerably. All predictions point to gas becoming the largest source of energy in the world, reaching over 28% by 2035. At present, countries such as US, Russia, Australia have made huge investments aiming to take a higher share of the LNG market. Qatar, the world’s largest producer and exporter of natural gas, with a market share of around 30%, has accounted for one third of the world’s total exports in recent years. Considering Qatar’s policies and increasing investment, it is expected that the export capacity of this product will only increase. America is struggling to keep up, and in the light of advanced technology with government-backed innovation projects and financial support, as well as the active participation of the private sector, it is planning to stake its own claim in the global energy market. Unconventional oil and gas production has turned the country from an energy importer to an energy exporter. According to the US Energy Information Administration, the country is set to become the third largest LNG exporter in the world after Qatar and Australia, with a daily production of 9.6 cubic meters a day.

 

Iran holds huge oil and gas reserves, yet is unable to play a role in Middle Eastern or world natural gas market. Iran annually exports only 10 bcm natural gas to Turkey, and is unable to complete any of the five LNG projects it has drawn up. Since the revolution, sanctions by the US have directly targeted Iran’s energy sector and decreased oil and gas production capacity, meaning that despite possessing the world’s second largest natural gas reserves, Iran now contributes just less than 1% of global natural gas. During the Obama administration, many foreign companies which were active in Iran’s energy sector withdrew from Iran, making it unable to reach its goal to increase natural gas production capacity. Iran planned to build five LNG facilities to produce 70 million ton of LNG annually to enter the LNG market.

 

Ali Kheyr Andandish, Iranian Managing Director of Natural Gas Liquidation states that if the LNG project can be implemented and produce the projected 80 million tons of gas, Iran will rank fourth among global exporters, but could also reach fifth place with a respectable 20 million tons. Plans have since been scaled back, with the country aiming to reach only seventh or eighth place in the world with a production of 10 million tons. Regarding gas pipeline routes, Iran’s planned pipeline through Iraq to Syria and on to Europe has been welcomed by European countries, and if conditions are favorable, European partners are looking to participate in the development of these plans. Iran’s gas exports to Europe via pipelines and LNG are in progress, allowing for multiple purchase mechanisms.

 

At present, Iran’s priority is to complete its LNG project with a production capacity of 10 million tons per year. The project is 52% in progress, and $4-6 billion is needed to complete work. So far, negotiations have been ongoing with foreign companies to complete the project, but all have yet to be concluded.

 

Iran has a number of plans to attract foreign capital and technology to become an LNG exporter. One of Iran’s plans include exporting natural gas to Oman via a planned Iran-Oman natural gas pipeline and using Omani LNG facilities to transit gas further afield. The Iran-Oman natural gas project plans to produce and export around 2 million tons of gas per year.The planned pipeline would connect Iran’s vast gas reserves with Omani consumers as well as with liquefied natural gas (LNG) plants in Oman that could re-export the gas mainly to Asian market. In 2013, the two countries signed an agreement to supply gas to Oman through the new pipeline in a deal valued at $60 billion over 25 years.

 

Iran’s other plans include producing LNG using Russian technology and capital. In 2017, Gazprom showed interest by signing an agreement with the National Iranian Oil Company (NIOC) to build an LNG gas facility. The joint geopolitical strategies of Russia and Iran have paved the way for the broad cooperation of two companies, especially in the field of oil and gas. This autumn, Gazprom signed a two-year deal with Iran on natural gas liquefaction (LNG) and contributed to the project to build a gas pipeline and transport natural gas from Iran to Pakistan and India. By December 2017, Iranian officials announced a six-month window in which Gazprom was invited to work on the project. However, further action has not been forthcoming and negotiations have so far led nowhere.

 

After the nuclear agreement was signed, Iran invited foreign companies to invest in the country’s five LNG plans, also asking Chinese energy firms to build small scale LNG facilities. In May 2016, the director of Iran’s national gas export company stated that Chinese companies ought to invest in the construction of CNG units and mini-LNGs in Iran, adding that Iran  was ready to supply LNG units. Again, no progress has been made in this regard.

 

Given developments in the energy market and the probable opposition by the Trump government of Iran’s recent missile tests, attracting foreign capital and technology to the Iranian energy industry, especially the LNG industry, looks harder than ever. Furthermore, due to the saturation of the LNG market, now with the assumption of raising funds, Iran has little chance of active participation in this sector. With the long-term planning, attracting the necessary capital and increasing LNG production with the establishment of new LNGs, it might be possible to have an effective presence on this market. Risk reduction in the country will encourage foreign companies to invest in Iran.

 

Iran has signed an agreement to produce LNG with Norway’s IFLNG , with natural gas to be provided by the South Pars seventh refinery to ships able to convert natural gas to LNG for transfer to sale in East Asian markets. In February 2018, Iran cancelled this agreement.

 

Iran’s plans to build small scale of LNG facilities are riddled with issues of their own. There is no guarantee that after the US withdrawal from the JCPOA they will remain interested in the Iran LNG sector, while another problem is the limitation of Chinese NOCs’ tech and capital capacities.  To sum up, if Iran is planning to become LNG exporter and plays role in LNG market needs to revise its foreign policy another problem is that to attract foreign investment Iran needs a legal framework, an efficient and fast decision process and political stability (especially in the international context). These variables are far from being achieved as we speak. Iran needs regional diplomacy in the field of energy to maintain regional markets, while the resolution of tensions with its neighbors will have a positive impact on the expansion of Iranian markets.

https://uwidata.com/

 

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Beyond The Deal: Turkish-Iranian Energy Relations In The Post-Sanctions Era

Because of the EU/U.S. sanctions regime against Iran’s energy sector, the country’s oil and gas production capacities have been decimated. Following the signing of the 2015 Iran nuclear deal—the Joint Comprehensive Plan of Action (JCPOA)—Iran hoped the country would attract more foreign investment and reverse the damage caused to its oil and gas industry.

 

Meanwhile, with growing domestic energy demands, neighboring Turkey is in dire need of energy supplies from reliable sources and wants to diversify its its energy resources. Thus, both countries are in the ideal situation to develop a mutually beneficial energy relationship. Yet, as many challenges as opportunities lie ahead.

 

Iran and Turkey signed their first energy agreement in 1978, just before the Iranian Revolution, with Iran agreeing to supply the country with one million tons of oil. By the Ahmadinejad era (before EU and U.S. sanctions were launched against Iran’s nuclear program), Iran had become Turkey’s largest oil supplier with the latter relying on Iran for 43.13% of its oil. With the onset of sanctions, Iraq replaced Iran as Turkey’s number one supplier. By 2015, with a deal to end sanctions, Turkey began importing around 20% of its oil and 18% of natural gas from Iran.

 

Since the U.S. withdrawal from the JCPOA, however, Turkey has once again decreased the amount of oil it imports from Iran. Turkey imported about 174 000 barrels per day from Iran between January and June 2018—down 27% from the year before—with Russian and Iraqi suppliers gaining lost ground.

 

Turkey signed an agreement to purchase 10 billion cubic meters annually of Iranian natural gas in 1996. Iranian natural gas exports to Turkey made up around 90% of the country’s total natural gas exports. Due to high domestic consumption in Iran, especially in winter, gas exports were curtailed to the frustration of those in the south of Turkey who were directly affected by the resulting supply deficit. According to the conditions of the agreement, if Iran were unable to export the agreed amount to Turkey, then the case would be referred to the International Court of Arbitration (ICA) with Iran incurring a heavy fine. At present, Turkey has no integrated natural gas infrastructure and needs Iranian natural gas to supply its southern regions in the winter.

 

Between 2009 and 2012, Turkey often complained about the quality and price of Iranian natural gas, and took its complaint to the ICA, which ordered Iran to pay Turkey part of its $1.9 billion debt with free natural gas supplies. The current agreement is set to end by 2026, and both countries must sign a new agreement to extend their relationship. Iran asked Turkey to double the amount of natural gas it imports from Iran in return for a discount in price. However, as of October 2018, no major progress has been made in negotiation, and if Iran and Turkey cannot sign a new agreement Iran will likely lose a major market. At present, Turkey is party to several transit projects. Once these go online, it will be doubly difficult for Iran to rely on its custom.

 

Furthermore, Turkey has begun to import natural gas from Azerbaijan and has also signed an agreement to receive 31.5 billion cubic meters annually from Russia. The United States, developing its shale gas, also supplies Turkey with liquid natural gas. At present, Turkey is the second major U.S. LNG importer in Europe and might come to rely more on the United States if an energy agreement with Iran cannot be extended. Turkey also imports LNG from Qatar,and is planning to expand this agreement in the future. Turkey has made huge investments in LNG storage facilities to increase the share of LNG in its energy basket in the mid-to-long-term future. Turkey also invests in renewable energy, eventually hoping to decrease foreign dependency in the long term.

 

Turkish private and state energy firms are interested in investment opportunities in the Iranian energy sector, with state energy company Botas signing deals to support work on phases 22-24 of the South Pars Field project in 2007 and 2008. Iran and Qatar share the South Pars Field together. Botas was to invest $12 billion in three phases, with half the production going to Turkey and the rest to the EU. However, due to EU and U.S. sanctions, these agreements were cancelled.

 

By 2015, and after the nuclear agreement, Iranian officials frequently called for around $200 billion in foreign investment and technology to revive its oil and gas production. In 2017, Turkey’s Unit International, Russia’s state-owned Zarubezhneft, and Iran’s Ghadir Investment Holding agreed to drill for oil and natural gas in Iran. This deal, worth $7 billion, involves work on three oil fields and one large natural gas field in the country. Unit International also has signed an agreement with Iran’s Energy Ministry to build power plants in other parts of Iran. This agreement, worth $4.2 billion, will boost capacity by 5000 megawatts. However, Unit International will likely withdraw from Iran’s energy sector due to U.S. pressure.

 

Still, Iran offers exciting prospect for Turkish investors. This investment can ensure Turkey achieve its goal of becoming a transit hub for moving gas and oil supplies from supplier countries to world markets. Although Turkey has at times complained about the quality and price of Iranian gas, the question is whether Iran will be able to be become a reliable supplier for Turkey in the post-sanctions era. Iran needs to press for an extension of the gas agreement with its Turkish counterparts. If Turkey does not extend this agreement, then the results will be a serious step back for Iran. Iran also needs Turkey to send its natural gas to Europe in the mid-term in order to regain its position among suppliers.

 

Turkish energy firms hold the power to provide Iran with needed investment, so Iran will be heavily dependent on Turkey for the foreseeable time. If Iran is interested in retaining its share in Turkey’s energy market, it must revise its regional policy and aim to solve problems with the United States, using the potential of its energy supplies to its advantage and attracting foreign investment to develop its facilities. Iran needs to offer Turkey a higher discount in order to sway the country from the temptations of U.S. and Qatari LNG and Russian and Azerbaijani natural gas. Further, Iran needs to develop a domestic legal framework that better facilitates contracting and granting commercial rights. At present, however, these problems are far from being resolved.

 

Omid Shokri Kalehsar is a Washington-based energy security analyst. Follow him at @ushukrik and uskenergy.com.

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Turkey’s Renewable Energy Potential

As a country with a strong dependence on oil and gas imports, Turkey is pursuing a developmental strategy for domestic resources which includes a renewable energy agenda alongside increases in nuclear and coal facilities. Turkey’s growing energy demand make a reliable supply of multiple resource streams a necessity. Turkey holds great potential for renewable energy and is giving priority to developing a broader contribution of renewable to the national energy basket. In 2017, Turkey took significant steps towards developing renewable energy resources such as wind and solar power. According to Turkey’s National Energy Plan, Turkey must ensure that 30% of its electricity is sourced from renewable energy sources. It is no coincidence that renewable may also provide the answer to lessening Turkey’s dependency on foreign resources.

One of the most important pillars of the “National Energy and Mine Policy,” launched by the Ministry of Energy and Natural Resources, is boosting access to renewable energy sources. Electricity generation from water, groundwater, wind, solar, and biological waste reached 32% in the last quarter of 2017, boldly expanding beyond the 2023 target of 30%. In the last 10 years, 53% of investments in power generation facilities have been made in renewable energies. Electricity production, which was 129.4 billion kWh in 2002, reached 219.6 billion kWh in the third quarter of 2017. In Turkey, the average amount of annual sunshine totals around 2750 hours… with this in mind, it is evident that solar energy could be an extremely productive resource to invest in.

According to General Director of Renewable Energy of Minister on Energy and Natural Resource, Oğuz Can, Turkey’s energy decision-makers believe that, while the 5 thousand megawatts target for the 2023 on solar and 20 thousand megawatts on wind goal is an ambitious target, it is more than possible for Turkey to achieve.

In the latest negotiations in the wind energy sector, the energy tariff was set at 3.48 cents / kilowatt-hour. This is the lowest price for wind energy among countries like Morocco, Peru, Mexico and Egypt, which have roughly the same levels of renewable energy production. This also marks a significant reduction compared to the previous price of 10.3 cents / kilowatt-hour, indicating significant savings in energy costs, which also indicates the capacity and competitiveness of the Turkish wind energy sector, which is set to benefit from further investment.

Employment opportunities in Renewable

According to the International Renewable Energy Agency’s (IRENA) 2018 Report on renewable Energy and Employment, employment in the renewable energy sector has increased in line with unemployment. Despite some constraints on production, wind energy provides a significant advantage for the countries’ energy supply security and contributes to the reduction of environmental damage. Wind energy is one of the least harmful energy sources of energy which has yet been developed, as well as an important source of employment. By the end of 2017, the clean energy sector in Turkey will employ 84 400 people: 33 400 in the solar energy sector, 16 600 in wind energy, and 14 200 people in related work.

Investment incentives

In 2012, the Turkish government announced plans to provide incentives for investment in the development of renewable energy sources, such as customs duties on imported goods. Obtaining a guaranteed power supply at low costs is another benefit to investing in this sector. Investing $610 million in financial facilities toward renewable energy companies is another part of Turkey’s plans to continue to play a leading role in renewable energy in the Middle East and North Africa.

The Turkish Ministry of Energy has been asked by the Norwegian DNV GL to launch a feasibility study on solar energy and energy storage in the country. The goal of this study is to research what combinations of energy storage and solar energy is possible, the best practices will be presented to the Ministry of Energy and Natural Resources of Turkey to be included in the ministries’ coming funding bid. The project is part of Turkey’s strategic plan to achieve a national target of 30% renewable energy production by 2030. The Ministry of Energy announced in late February that it will hold the bid for renewable energy projects this summer.

With this new bidding, the government plans to increase the capacity of the country’s solar power plants by 5% by the year 2023.

The country has long been seeking to link the natural gas producing countries in the Middle East and European import countries. The plan will make Turkey competitive with top regional producers by creating a new and independent source of energy while increasing energy security in the region, especially in southeastern Europe. If Turkey can develop its own renewable sources of finance through technological and financial challenges, it will be able to afford diversity, independence and sustainability in the energy sector.

Increased energy consumption usually brings with it significant environmental problems. Emissions from common energy sources are contributing to air, water, and soil pollution. Human energy consumption threatens nature and biological diversity. The only solution to the problem is the use of renewable energy sources. As in many developing countries, in Turkey, there is an effective and economical way to combat global climate problem; increase energy efficiency, reduce energy intensity and provide energy savings. When increasing energy efficiency, the effect on carbon intensity should be determined and plans and applications should be crafted accordingly.

Renewable energy could help Turkey supply the majority of its electricity demand and decrease dependency on foreign resources. Turkey is affected significantly by climate change, and therefore public and private organizations in this field ought to be put under intense pressure to expand the renewable sector. Turkey has a good investment climate, and will be able to attract foreign technology and capital, providing benefits in terms of energy, the environment and employment.

 

https://uwidata.com

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US LNG and Turkey’s Energy Security

The shale gas revolution had provided the US with an opportunity not only to become energy efficient, but also a natural gas exporter. US interests in energy exports hinges on boosting relations with neighbors and allies. Turkey’s growing economy and equally increasing energy demands make it a good candidate for US liquified natural gase (LNG) supplies. At present, Turkey imports most of its natural gas from Russia, Iran and Azerbaijan.

 

The US’ LNG has the potential to provide an alternative to Iranian natural gas in Turkey’s domestic market. Trump is currently actively trying to decrease Iran’s influence in the region and weaken its economy. Turkey is a major costumer of Iranian natural gas and uses gas from Iran to cover excess winter demand in its South. However, the real question is Turkey’s lack of integrated natural gas infrastructure. Turkey will need more investment to create an integrated infrastructure. Current Iran-Turkey natural gas agreements will end by 2026, and more LNG imports from the US wuld provide an opportunity for Turkey to gain the upper hand in negotiations to decrease natural gas prices for next decade if both countries want to extend this agreement.

 

Turkey is also dependent on Russian natural gas, importing more that 50% of natural gas from Russia. Russia and Turkey’s joint construction of the Turkish Stream pipeline will lead to further integration once in operation. Turkey will import natural gas from the Turkish Stream and also export gas to Greece via this pipeline. Last June, Turkey also begin to import natural gas from the TANAP project: Azerbaijan will also increase its share in Turkish natural gas market.

 

In the past few years, Turkey has made significant contributions to the realization of this dream, with significant investments in infrastructure, especially in terms of pipeline development and increased capacity for the maintenance of LNG and has even supported Qatar in its endeavors to do the same. The country’s natural gas storage capacity will double by 2023 to 11 billion cubic meters. If this is achieved, Turkey will preside over one of the largest gas reservoirs in the region.

 

A few years ago, Turkey began working to build an import terminal with an annual capacity of 5 to 6 billion cubic meters of gas. Cooperation between Turkey and Qatar is increasing due to agreements between Ankara and Doha on certain political crises in the region.

 

Within the scope of Kuzey Marmara Natural Gas Storage Expansion Project, there are plans to increase total storage capacity to 4,6 bcm and withdrawal capacity to 75 mcm/day. Furthermore, the TuzGölü (Salt Lake) Natural Gas Underground Storage Project in Central Turkey, whose first phase has since been completed, is planned to reach 5.4 bcm working gas capacity and 80 mcm/day withdrawal capacity by 2023.

 

The first Floating Storage and Regasification Unit (FSRU) of Turkey has been launched by the national private sector in Aliağa/İzmir to achieve supply security and diversification of gas sources. In Hatay/Dortyol, the second FSRU of Turkey has been opened. Moreover, studies on the connection of FSRU to the natural gas transmission system in Saros Gulfs are continuing by BOTAS. As Berat Albayrak, Turkey’s former Energy Minister stated: “In addition, this time we pressed the button for BOTAS ‘second floating LNG project with a daily capacity of 20 million cubic meters. With the new investments, the LNG capacity to be supplied to the system will rise to 107 million cubic meters per day. This means an increase of more than 3 times (in LNG capacity) after two years of investment. With just the steps we took in 2016, we increased the LNG capacity by 90 percent to 34 million cubic meters to 64 million cubic meters. ”

 

Turkey’s former Minister of Energy and Natural Resources claims that 78 cities have already been connected to natural gas supplies. Albayrak emphasized that installed power in the next 10 years should increase by 50 thousand megawatts: by 2018 Turkey will have constructed 17 natural gas and LNG facilities and 21 new natural gas reserve facilities. The US plans to play a more active role in Asia over the medium term by investing in related projects in 2018 and 2024.

 

The United States currently has an active terminal for liquid gas exports. There are also 6 terminals under construction and 30 terminal construction projects for liquid gas exports. At the same time, the capacity of these six terminals under construction in the United States is projected at 57.55 million tons.

 

The US can use its LNG to undercut Russian LNG and increase its share in the regional and global market. Turkey’s market is one that US LNG can contribute to and help Turley’s energy security at the sime time by reducing dependency on Russia and Iranian natural gas. LNG from the US needs to be more competitive in regional markets in general, and especially in Turkey. Turkey must attract more foreign financial resources and foreign technology and use domestic firm’s technology to invest in the required infrastructure. Similarly, such a development would provide an opportunity for Turkey to move forward in its aim to become a regional natural gas market, benefiting from its increased investment and technological capacities

 

source: https://uwidata.com/434-lng-and-turkeys-energy-security/

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Iran’s joint fields offer development, partnership opportunities

Omid Shokri Kalehsar
Yalova University
Yalova, Turkey

After 36 years of limited access to tools, technologies, and international exploration and development partners, Iran is now working to expand its domestic hydrocarbon resources.

The UN Security Council in July 2015 unanimously adopted Resolution 2231 endorsing the Joint Comprehensive Plan of Action, providing Iran with sanctions relief in exchange for the country’s commitment to curtail its nuclear program.

Three-fourths of the country’s reserves lie within its national borders, but Iran shares 28 oil and gas fields with neighboring countries. These joint fields contain 20% of Iran’s oil reserves and 30% of its natural gas.1 Of the 28 joint fields, 15 are oil fields and 11 are located in the Persian Gulf.2 Ongoing sanctions have caused Iran’s development of these cross-border fields to lag those of its neighbors.

Joint fields with Iraq

Five of Iran’s joint oil fields are on its border with Iraq, which has a 7-year plan to increase oil production to 12 million b/d. The Iraqi government invited Iran to invest in its cross-border fields in 2010 with the aim of improving development and increasing production, but Iran declined the offer due to a lack of financial resources.

While Iran was under international sanctions, Iraq produced 295,000 b/d from its joint fields compared with Iran’s 130,000 b/d. Iraq’s government also signed agreements with several major international oil companies to increase the country’s production from its cross-border fields.3 Iran announced in January 2016 a plan to increase oil production from Iraqi joint fields to 200,000 b/d in 2017 and as much as 700,000 b/d in subsequent years.4 Both countries have revised their oil contracts with benefits outlined for joint fields, but Iraq’s ongoing development gives it an economic advantage as Iran revives its oil and gas sector.5

 

Azadegan oil field, which is shared with Iraq, holds an estimated 33 billion bbl of oil and is one of the largest oil fields in the world (Fig. 1). It is divided into north and south sectors. Iraq produced more than 185,000 b/d in 2016 from North Azadegan and plans to increase production by 40,000 b/d. Iran produces only 50,000 b/d from South Azadegan field.6

Iran’s President Hassan Rouhani has put forth a 52-month development plan for South Azadegan, calling for 320,000 b/d of oil production and 197 million cu m/day (MMcmd) of natural gas production in its first phase, with a second phase to add 60,000 b/d of oil.7 Iran already has made several attempts to improve development in Azadegan. As early as 2004, Japan’s Inpex Corp. signed an agreement to produce 150,000 b/d of oil from Azadegan, but the company withdrew from Iran’s energy sector in 2006 under pressure from the US government. Russia’s Gazprom and the Government of India made subsequent attempts to develop Iran’s Azadegan field but were unsuccessful. China National Petroleum Corp. was the latest international operator to sign development agreements with Iran regarding Azadegan, but the operator has experienced major delays in bringing the field online. Azar oil field is in the Ilam province near the Iraqi border in the Anaran Block and its stony surface conditions have impeded development. The field is estimated to contain 400 million bbl of oil. In 2014, Iranian operators began producing 30,000-35,000 b/d from Azar. The Iranian government plans to increase production to 65,000 b/d.8

South Pars field

South Pars, one of the world’s largest gas fields, is shared by Iran with Qatar (North field), and has proven natural gas reserves of 14 trillion cu m (tcm), or 7.5% of global gas reserves. The field also contains an estimated 18 billion bbl of condensate. The joint field covers 9,700 sq km, of which 3,700 sq km constitute Iran’s South Pars (Fig. 2). Qatar began producing and exporting natural gas from North field in 1998, and the Qatari government has signed development agreements with Total SA, Eni SPA, and Statoil ASA, among others.

Qatar has invested a cumulative $400 billion in North field’s development, becoming one of the world’s largest exporters of LNG earning about $100 billion/year as a result.Qatar produces 650 MMcmd of gas and 425,000 b/d of oil from North field, and plans to add 52,000 b/d.10

Iran has invested $70-80 billion to develop South Pars, which explains the disparity with Qatar’s production. Iranian Minister of Petroleum Bijan Zanganeh said the country’s gas production would “equal Qatar’s by late 2017 or early 2018.” He added that even under sanctions South Pars gas production has increased 150 MMcmd since 2013, when President Rouhani came to power. Zanganeh said more than 85 MMcmd will be added in 2017.11

 

Saudi Arabia

Iran shares several fields with Saudi Arabia. Esfandiar field contains 532 million bbl of proven oil reserves. Iran signed agreements with Malaysian firm Petronas for its development before sanctions disrupted financing in 2009. The project was planned to deliver 10,000 b/d and 20,000 b/d in two phases, respectively. Iran is seeking investors to issue exploration licenses for the field.

 

Iran shares Farzad A and B natural gas fields with Saudi Arabia in the Persian Gulf. Farzad B, which was discovered by India’s state-owned Oil and Natural Gas Corp. Videsh, contains 5.1 tcm of gas. Iran estimates that Farzad B will cost $5 billion to develop. A consortium from India has shown interest in the project. Minister Zanganeh has said Farzad B is Iran’s first development priority and he expects to have a development agreement signed by March 2017.12

Arash gas field, known as Aldorah in Kuwait, lies southwest of Khark Island in the Persian Gulf. Geographically, the field is shared between Iran and Kuwait, but Saudi Arabia has laid claim to the resource in recent years. Arash field has proven gas reserves of 368 billion cu m (bcm). Arash is a needed domestic supply of natural gas for Kuwait and Saudi Arabia, both of which have oil-centered reserves.

 

Kuwait and Saudi Arabia established Al-Khahji Joint Operations in 2000 to develop Arash field with a goal of producing 1 bcm/year of natural gas by 2017.Iran is not operating in Arash field, but it has invited investors to develop its gas reserves. The field is expected to become a point of contention between Iran’s renewed oil and gas sector and neighboring Arab countries.14

 

UAE, Oman

Salman oil and gas field holds 473 million bbl of oil and 5.2 bcm of natural gas. Studies for this field have shown 70% of the reserves are Iran’s with the UAE controlling 30%. Iran produces 40,000 b/d from the field and the UAE 70,000 b/d.10

The UAE holds the majority of reserves from the joint Nosrat oil field, but Iran began producing from the field in 1995. Iran’s production, however, peaked at 3,300 b/d, and while the country had planned on raising production to 45,000 b/d, financial constraints led to cancellation of the project.13

Hengam oil and gas field is Iran’s only joint field with Oman. Eighty percent of Hengam lies inside Iran, with production of 20,000 b/d of oil and 40 MMcmd of natural gas outstripping Oman’s.10

 

 

Caspian Sea

The Caspian Sea is shared by Iran, Russia, Azerbaijan, Turkmenistan, and Kazakhstan. These countries have attempted to agree to terms for Caspian Sea exploration, but negotiations have not yielded a defined framework (Fig. 3). Iran has proposed that the Caspian be divided into five equal parts, but the governments cannot agree on boundary locations.

Maritime boundaries also directly confound the relationship between Azerbaijan and Iran, with both countries maintaining conflicting claims of offshore energy reserves. Foremost among these disputes are Azerbaijan’s Araz-Alov-Sharg hydrocarbon blocks: a 1,400 sq km area containing an estimated 700 bcm of natural gas. Azerbaijani control of Alov field, 120 km southeast of Baku and known as Alborz in Iran, is particularly disputed, Iran claiming that it lies partially in its territorial waters. As recently as 2001, two BP PLC research vessels were driven from Alov field by an Iranian gunboat, and work has stalled in the region.

Iran’s Alborz field development was financially and technologically limited during sanctions. The country identified several Caspian Sea prospects but had no access to technology to drill in 1,000 m of water, and sanctions limited access to western exploration companies.16

Azerbaijani officials argue the Caspian should be divided by its median line and perpendicular borders extending to the national coast lines, as outlined by the 1982 UN Convention on the Law of the Sea. Russia and Kazakhstan adhere to the UN Convention and both countries plan to develop hydrocarbon resources from their corresponding Caspian territories.15

 

Iran petroleum contract

The National Iranian Oil Corp. is targeting production increases from South Pars and West Karoun (Azedegan field) in the post-sanctions era.17Iran’s Petroleum Contract (IPC), meanwhile, was developed in November 2015 to provide more transparent and lucrative investment opportunities to international oil companies seeking development projects.The preceding buy-back model’s shorter operating windows, high upfront expenditures, and uncertainties of project continuity had limited international investment. IPC increases protection for commitments from international oil companies. It includes four phases: exploration, development, production, and enhanced oil recovery, but provides 15-20 year exploration phases as opposed to the buy-back version’s 5-7 year window.

 

The Iranian government has said it will target nearly 50 oil and gas projects worth $185 billion for inclusion of IPC by 2020, many of which are in joint fields.18 Iran is seeking foreign investments of $50 billion/year, and France’s Total and Italy’s Eni have expressed interest in new developments.19

 

In addition to overseas investment, Iran will also rely on cooperation from neighboring countries to improve joint field development and increase security and stability in the region.

https://www.ogj.com

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