The Future of Iran-South Korea Energy Relations Post Sanctions Era

Energy always plays an important role in US foreign policy. Some analysts believe if the Trump administration is serious about shaking up U.S. foreign policy, increasing U.S. energy security would be a wise first step. By following a policy of energy security at home and in the American hemisphere, the Trump administration can increase power for itself aboard.  One of the Trump administration’s goals from renewed sanctions on the Iranian energy sector is to have an opportunity to help the U.S. energy industry with the imposition of the right policy. Finding a new market for US LNG and US oil may be the aim of US sanction against Iran. The shale gas boom gives an opportunity to the US to turn into one of the World’s leading condensate exporters.

 South Korea Energy Imports from Iran

South Korea, as one of the world’s leading technical and engineering services exporters, has a significant financial and credible reputation with Iran, which is pursuing industrial development policies and using advanced technologies and attracting foreign capital. South Korea is one of the major trading partners of Iran, with the balance of trade between the two countries in favor of South Korea. In the course of these events, the two countries have taken the policy of expanding bilateral relations, especially during the last quarter of a century, which have been interrupted by some sanctions against Iran.

Iran’s energy exports to South Korea

South Korea imports 97 percent of its crude oil due to resource constraints; Iran was the largest exporter of oil to South Korea before the sanctions, and South Korea was the largest exporter of automotive equipment to Iran. After sanctions against Iran, South Korea stopped buying oil from the country, and imports from Korea dropped to almost zero. South Korea, the fifth largest oil importer in the world, in November 2018, took a six-month exemption from Washington to continue importing Iranian oil. Korean buyers can import Iran’s most condensate oil at a maximum of 200,000 barrels per day under the Washington exemptions, but must use appropriate methods, including cargo shipment, as well as cargo insurance. Korean banks stopped paying Iran’s oil money on the eve of the start of oil sanctions, but Seoul is still striving to be exempted from Washington’s sanctions against Tehran to receive part of its oil from Iran. South Korea, by far the largest importer of condensate from South Pars, was purchasing 6 million barrels of condensate from Iran in June 2017.

South Korea is one of the main customers of Iranian gas condensate. More than 55 percent of Iran’s gas condensate is exported to the country. According to the official statistics of the Ministry of Oil, the average amount of Iranian gas condensate exports in 2017 was 428 thousand barrels per day. In the first six months of 2018, Hanwha Total Petrochemical, the largest importer of Iranian gas condensate, has imported 15.92 million barrels of gas condensate from Iran, which is a reduction of one third, and imports from Qatar and the United States have increased. In gas production from each phase of South Pars, an average of 40,000 barrels of gas condensate are produced per day. South Korea’s Hanwha Total Petrochemical Company, with the aim of finding an alternative to Iranian oil and gas condensate, has increased the purchase of condensate from the United States and Australia and is seeking to purchase more shipments from Europe. After sanctions Korean refineries and petrochemical companies stopped shipping crude oil and condensate from Iran for the first time in past six years because of fears of US sanctions.

US Oil exports to South Korea

By 2017, the US was the sixth largest supplier of South Korean crude oil, which topped Russia and Iran at that time. The company was also the third largest South Korean LNG supplier, while South Korea was the largest importer of LNG from the United States. South Korea imported  at least 18 million barrels of crude oil and 900 thousand tons of natural gas (LNG) from the United States in January and February 2019. The jump in South Korean oil and gas imports by the United States continues to curb trade deficits with major United States trading partners by selling them more. Oil and LNG exports are a key part of this strategy.

By 2018 the US had doubled its oil exports and was exporting 2 million bpd of crude oil to 42 destinations. The volume of exports to destinations throughout the year changed significantly, with US exports of crude to China dropping compared to other destinations, such as South Korea, Taiwan and Canada. In 2018, Asia was the largest regional destination of US crude exports, followed by Europe, while, as in previous years, Canada was the largest destination for the United States crude oil exports overall. Canada received 378,000 bpd of US crude exports, accounting for 19% of total US crude exports in 2018. South Korea surpassed China to be the second-largest destination for US crude oil exports in 2018, gaining 236,000 barrels a day compared to 228,000 barrels a day in China.

The United States uses energy exports, especially LNG, to expand its relations with its neighbors and allies everywhere in the world. The energy security of the European Union and its strong dependence on Russian gas have led the United States to have a special look at the energy market of the European Union, and with the increase in LNG exports along with the acceleration of the construction of the Southern Corridor, their gas need will require the Union to depend on Russia. Slowly the East Asian market, especially South Korea and Japan, which imports the majority of gas condensate from Iran, is becoming a good opportunity for LNG to play a role in South Korea’s energy security.

Trump’s decision to withdraw the United States from JCPOA has not taken place without considering the opportunity to export more energy resources. US LNG exports have always been the concern of the Trump government, while sanctions may once again reduce Iran’s oil exports by 1 million barrels per day, the US oil and gas sector is unlikely to take on Iran’s share of the market. The subsequent sanctions on 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 risk of investment in the Iranian oil and gas industry is another result of US sanction. 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.

That the US exports more oil and LNG to South Korea is not a good point for Iran’s future energy exports to South Korea. If South Korean refineries give themselves to US crude oil, this would mean that Iran would have difficulty recapturing its share of the Korean energy market after sanctions are lifted. Iran will not be able to increase production and increase oil exports without foreign investment and technology. Decrease in foreign exchange earnings will directly affect Iran’s economic situation. Considering developments in the energy market and US sanctions, attracting foreign investment and technology will be harder for the Iranian energy industry. Achieving the objectives of the sixth plan of development is possible only with foreign investment, which requires a reduction of political risk in the country, by reviewing foreign policy and providing other necessary conditions for foreign companies, especially Russian and Chinese companies, to invest capital in Iran. A change of attitude in foreign policy and an attempt to eliminate tension with neighboring countries can be a step toward attracting foreign investors.

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Iranian, Saudi Interests Conflict in Iraq’s Energy Market

The lack of infrastructure for supplying electricity makes Iraq a battleground for energy between regional rivals Iran and Saudi Arabia

Energy suppliers are trying to use energy exports as a key factor in shaping foreign policy and their relations with neighbors and other countries. Iran and Saudi Arabia as two key members of the Organization of Petroleum Exporting Countries (OPEC) have their own priorities and interests in the region. Their opposing interests have forced them to support opposing sides in regional tensions, such as in Syria and Yemen. U.S. sanctions against the Iranian energy sector have given an opportunity to OPEC and non-OPEC members to export more oil to the regional and world market to take Iran’s stake in the market.

Presently, Iran exports electricity to neighboring countries and according to Iran’s 20-year development, by 2025 they must prepare all the required infrastructure to become a regional electricity hub. Iraq is the biggest importer of Iranian electricity. Both countries signed an agreement in 2005 to export Iranian electricity to Iraq.

Iraq, with huge oil reserves, has a problem in generating the required electricity and must import from its neighbors. The Iraqi government can only supply 68 percent of its electricity in normal conditions. With increasing temperatures, especially in the summer, this ineffective capacity is severely reduced. Iraq faces a shortage of 5,000 megawatts (MW), although several power plants are under construction, but the electricity demand of the country is increasing by 7 percent annually. Since the first Gulf War in 1990, the power generation infrastructure has been abandoned in Iraq. This situation worsened after the invasion of Iraq in 2003. After the end of the Gulf War, Iraq tried to attract foreign technology and financial capital to recover oil production capacity and construct an electricity grid. The Daesh problem and its negative effect on Iraqi national security is another major factor that has led to Iraq becoming an electricity importer.

Iran and Iraq have signed an agreement over exporting 150 MW of electricity to Iraq annually. This agreement is extended every year. By Feb. 11, 2019, Iran extended electricity to Iraq for one more year. Iraq imports 120-130 MW annually. But due to sanctions and Iraq’s financial problems, Iraq was not able pay for importing electricity. According to Iranian officials, Iraq is interested in paying its debt and is looking for a way to send money to Iran. Homyon Hairi, deputy to the Iranian minister of energy, believes that, “There is a positive outlook in this regard, which is to be followed by joint executive working groups.”

Iran’s gas customers

Iraq and Turkey are Iran’s major natural gas buyers. Iraq began importing gas from Iran in late June 2017, with imports of about 14 million cubic meters per day, with Turkey importing about 30 million cubic meters a day. Iran plans to export 25 million cubic meters of gas daily to Baghdad and to transfer gas to Basra province.

As mentioned earlier, Iraq is unable to pay for electricity and natural gas from Iran. According to the latest statics released by the Iranian Ministry of Oil, Iraq must pay about $2 billion to Iran over natural gas and electricity imports. It is expected to solve this problem during Iranian President Hasan Rouhani’s visit to Iraq. Rouhani has shown interest in exporting more electricity to Iraq; though he has not mentioned the methods they may be able to agree upon in paying the electricity and natural gas debt to Iran. It seems both presidents have not agreed on this issue.

Last summer, Iran cut the electricity flow to Iraq due to high domestic consumption, according to Reza Ardakanian, Iran’s minister of energy. Iran’s neighboring country has a wide range of demands, partly through Iran’s transmission lines, adding: “We are in constant touch with Iraq, and just a few days ago, the Iraqi Minister of Electricity was here and talked to us.” Stopping the export of electricity from Iran has aggravated the problem of electricity in Iraq, causing massive street protests, especially in Shiite cities, against the central government as well as against Iran.

Iran cutting electricity provides an opportunity for Saudi Arabia to use energy investments in Iraq to increase its political influence. According to the spokesman for the Ministry of Electricity, Musab Sari al-Mudaris, Saudi Arabia has agreed to launch a solar power plant with a production capacity of 3,000 MW in northern Saudi Arabia near the Iraqi border, and each megawatt of electricity will be offered to Iraq at $21, which is equal to one-quarter of Iran’s electricity exports to Iraq. Saudi Arabia has not only put electricity prices at a quarter of Iran’s electricity prices but also exported three times more exports than Iran. Saudi Arabia continues to compete with Iran in the economic sphere by building a solar power plant in Iraq and selling electricity to that country.

After Rouhani’s visit to Iraq, Saudi Commerce and Investment Minister Majid bin Abdullah Al Qasabi visited Iraq and met with Iraqi officials. According to an official statement by the Iraqi president, Iraq is interested in establishing a mechanism for joint economic interests with regional countries, especially Saudi Arabia. Last year, the Iraqi government showed interested in developing and boosting its relations with Arab countries. Iraq and Saudi Arabia signed an agreement in 2017 to form a coordinating council.

Saudi Arabia is seriously trying to expand its ties with Iraq with the aim of limiting Iran’s influence in Iraq, with at least a counterbalance to it. Of course, the United States has also contributed to this strengthening of relations between Iraq and Saudi Arabia, especially as the United States, like Saudi Arabia, wants to reduce Iran’s influence in the region. But the point is that all this competition will be beneficial for Iraq.

The Saudi perspective

Saudi Arabia is pursuing its main goal by strengthening its ties with Iraq: First, the decline of Iran’s influence in Iraq, and the other in attracting Iraq to its Gulf-Qatari axis. Saudi Arabia has concluded that the policy that has taken place in Iraq since 2003 is wrong and that Iraq is a fundamental part of the Arab world’s geography.

Saudi Arabia and Iraq have not cooperated for more than 27 years, and Saudi Arabia is rapidly seeking to expand ties. In the sacred city of Najaf in Iraq, Saudi Arabia seeks to establish a consulate and have a rich presence among the Shiites as well. According to Iraqi officials, this consulate will be set up soon. Cooperation between Saudi Arabia and Iraq is at an early stage and in the meantime, meetings have been held at high levels in which Saudi Arabia has pledged a $100 billion investment in Iraq and to rebuild Sunni cities such as Fallujah, Ramadi, Tikrit and Mosul.

The Saudis have focused their efforts in the province of Basra, because this province is considered the richest Iraqi province. With the implementation of large projects in the province, the Saudis hope to compete with the Iranians or even overcome them.

Iraqi officials hope that Saudis will use their money in road construction projects and re-activate the Iraqi oil export pipeline to the

Red Sea, which has been closed since 1990.

A new alliance

For about six months, officials and senior officials from Saudi Arabia and Iraq have been meeting, and there are ongoing efforts to work together and reach a new alliance. Saudi Arabia is using investments in multiple countries’ infrastructure and energy sectors to boost its political influence in the country and also trying to affect foreign policy orientation. Saudi Arabia plans to invest in an area of 1 million hectares in the livestock and poultry industry of Iraq.

The Saudi initiative, described as an opportunity to confront the influence of Iran in Iraq, is the result of efforts by former Iraqi Prime Minister Haider al-Abadi to balance ties with his neighbors. The project was initiated by the Saudi Arabian Cooperation Council and Iraq, which was founded in October 2017.

Saudi Crown Prince Mohammed bin Salman – on his visit to India, Pakistan and China – tried to use investments in these countries’ energy sectors to reduce Iran’s role in these countries’ energy basket and energy security. Iran and Saudi are Shiite and Sunni countries looking to expand their sphere of influence in the region. Iraq with both Sunni and Shiite people is very important for Iran and Saudi perspectives and it seems that in coming years both countries will be using all instruments to increase their presence in Iraq and reduce the influence of other countries in Iraq. Saudi Arabia, with huge financial capability, will be able to play an important role in Iraq post-Daesh. Iraq needs billions of dollars for construction post-Daesh and is an opportunity for Saudi Arabia to increase its influence. Iran never wants to lose its key role in Iraq and in Iraqi Shiite groups. Iran also wants to have a role in Iraq in the post-Daesh period.

Geopolitical competition between Iran and Saudi Arabia will continue in Iraq. Saudi Arabia and other Arab countries are seeking to increase their influence in Iraq, and new U.S. sanctions against the Iranian oil sector could provide such an opportunity. However, coping with Iranian influences from politics to trade is difficult.

//www.dailysabah.com

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Iran’s Petrochemical Industry During the Sanctions Era

The sanctions against the Iranian energy industry since the Iranian revolution not only reduced Iran’s oil and gas production capacity but also made Iran unable to use its potential in the petrochemical industry. Due to sanctions, Iran could not play an important role in the petrochemical market. The use of massive gas resources as cheap feedstock is one of Iran’s best potential methods for producing low-cost petrochemical products. The use of huge Iranian gas resources and the conversion of these capacities to petrochemicals is an important alternative to prevent raw materials and cheap energy sources, although it is not easy to use all existing petrochemical capacities in the context of the recent U.S. sanctions against Iran.

Utilizing the potential of petrochemicals will allow Iran to increase its non-food exports and consequently increase its government currency resources. The value of this industry is estimated to be between $14 billion to $16 billion, which is expected to increase to $50 billion if the sixth plan is fully realized.

In the vision of Iran’s 20-year development plan, the petrochemical industry should become the first-generation power sector in terms of the value of petrochemicals, and the production capacity of petrochemicals will reach $180 million by 2025. Another important objective outlined in the outlook document is to replace the export of oil, gas and petrochemicals instead of exporting crude oil and natural gas, and supporting and strengthening the production chain. Given that according to law, the government is not allowed to invest in petrochemical projects, it must prepare the conditions for the more active participation of the private sector in this field.

Selling products as petrochemicals is another problem in the sanctions period, as foreign partners in petrochemicals will be struggling to work with Iran because they are afraid of U.S. sanctions against their companies, and, of course, production and sales in the petrochemical sector. It will be difficult to imagine the sale stage, if left behind, the import of currency to the country itself has problems, and with this, naturally, the money in petrochemical will remain in the accounts of foreigners. This money should be pumped into petrochemicals at the time of sanctions to cover current costs, such as purchasing feeds that are essential for production.

Studies show that, despite positive measures and significant achievements in the country’s petrochemical industry, there are still weak points that need to be considered and addressed to achieve the desired goals of the documents and laws related to this industry. Policies and laws related to the petrochemical industry of the country emphasize the role of this industry in increasing the value of the oil and gas industry chain, counteracting the vulnerability of oil and gas exports, and the production and export of final petrochemical products.

The Downside

According to forecasts, to reach the target at the end of the sixth program, the value chain of downstream industries and the production of high added value products in the petrochemical industry should be formed. But, as was expected, the new sanctions imposed by the new U.S. led to the industry’s decline. Companies with high technology and modern technology, as well as with adequate financial resources, did not want to invest in Iran’s petrochemical industry. One of Iran’s policies to find a bigger share in the world’s petrochemicals market is diversification into the creation of products that will enable Iran to operate in multiple markets and have a more active presence. The development of petrochemical downstream industries will prevent the value chain from completing with crude oil.

After the Joint Comprehensive Plan of Action (JCPOA), Iran hoped to attract more than $100 billion of foreign capital to restore and increase its oil and gas production capacity as well as increase the capacity of producing petrochemicals. Given that some of the active units of the petrochemical industry of Iran are 40 years old and the renovation of these units was among the priorities of Iran, Iran failed to absorb the capital and technology needed to modernize these units. Iranian companies have good potential in the field of petrochemical, but the main problem is the use of rival companies such as the subsidiary of the tactics and foreign capital.

Sabic Saudi Arabia, the largest Middle Eastern petrochemical company and one of the five largest petrochemical companies in the world, also has the necessary support from the Saudi government, and with the

use of advanced technology from American companies active in Saudi petrochemicals, it has been able to keep its share in the regional and global market. While the company is deprived of huge gas resources such as Iran, the use of the latest technology from foreign companies and the newness of its petrochemical plant has made it possible for the country to sell petrochemicals at cheap prices.

During the last sanctions, petrochemical companies faced two major problems: First, exports of petrochemical products decreased significantly, and second, due to financial and banking sanctions and Iran’s lack of use of the Swift system, petrochemical companies could not export their goods to Iran, and they needed to them to provide part of the export currency to the importers of goods. Today’s petrochemical companies are facing a lot of problems, with feed and supply rates being one of the key and significant issues. On the other hand, petrochemicals have not been able to capture the satisfaction of domestic customers – downstream industries. The price of gas feed in the past year was more than 300 percent. Additionally, the price of various types of services increased from 50 to 300 percent. As a result, the price of gas feed to petrochemical units in Iran is more expensive than all countries of the Persian Gulf. In petrochemicals in this area the main competitor is Iranian petrochemicals. Iran’s petrochemical industry, due to its vast resources of energy and access to adequate and cheap fuel, has quickaccess to global and regional markets, and there is potential for Iran’s petrochemicals to be widespread among foreign investors.

Inadequate Supply

In recent years, most petrochemicals have not been able to capture the satisfaction of the domestic customers, that is, downstream industries. These factors, along with the impact of sanctions, will make it hard to work for petrochemicals. With the high consumption of natural gas in Iran and the lack of attracting foreign capital in the Iranian oil and gas industry, Iran will not be able to achieve its goals of increasing the production of petrochemical products. The withdrawal of Total and CNPC from Phase 11 of South Pars showed that as long as the sanctions are in place, large companies in the energy industry of Iran will not be able to function and Iran will have to use the capital and technology of domestic companies. But how Iranian companies with limited capital and technology can meet Iran’s petrochemical needs is a question. The burnout of major petrochemical units is also an issue that should be addressed by the authorities of the Ministry of Petroleum. The dumping of Saudi petrochemical products in the petrochemical market is another problem for Iran’s petrochemical industry.

In the opinion of the petrochemical industry, it is necessary to open new markets for Iranian products at any cost. Due to the high level of production of petrochemical products and its diversified and low prices, Iran can bring important markets around the world, provided it does not go to producers with domestic laws and regulations.

Exports to EU Market

Iran exported $2.5 billion in petrochemical products to the EU market in the years prior to the last sanctions, but this became a problem with the start of sanctions and hence almost stopped. After the signing of the agreement, Iran’s exports to European countries were resumed and, on the other hand, facilitating the import of needed technology and catalysts into the country in the event of bank transfers going on normally. Petrochemical experts say past concerns in the field of petrochemicals have now fallen sharply, and even if America puts Europe out of reach, we are not worried about the situation.

Analysts believe that in the past, all financial transactions between Iran and other countries had been difficult and practically disrupted the trading system of the country, and petrochemical companies were unable to export their products to the country due to these sanctions. At that time, exporting companies could not enter their currency and provide it to importers or use it to purchase the equipment they needed.

In general, it should be noted that sanctions on Iran’s petrochemical industry included four main sectors: Sanctions on the export of products, sanctions on petrochemical products exports, technological sanctions and technical knowledge, and, finally, sanctions on the petrochemical industries. Of course, the United States has nothing to do with Iran in any of these areas, but the main concern is the sanctions imposed on European and Asian companies.

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MBS in China, Saudi Arabia’s new shift to Asia

The political and economic developments in the Middle East region are always at the forefront of the great world powers, and each power, using the leverage of political relations and investment, seeks to increase its presence and influence in the region using infrastructure projects to reduce the presence of competitors in this strategic region.

Major powers are always willing to have energy supplies from oil and gas producing countries, or if they can achieve it, they will prevent the control of energy sources and the routes of energy transit by rival powers.

China is now, and in the face of increasing economic growth since the 1980s, seeking to play an important role in global developments. The Middle East is one of the areas where Chinese politicians have been keen to import a significant part of the demand for oil from the Middle East. In order to increase its role, China has major projects such as the “One Belt, One Road” (OBOR) plan, which will increase the role of China in the regional and global balance of power. The new Silk Road plan is designed to invest in the infrastructure of more than 60 countries and the development of two commercial routes, the Silk Road Belt and the Silk Road of the Sea, which were presented by China in 2013.

Iran and Saudi Arabia as two main members of the Organization of Petroleum Exporting Countries (OPEC) have always had a special place in China’s foreign policy. China has paid special attention to Iran and Saudi Arabia in the road and belt project. During Saudi Crown Prince Mohammed bin Salman’s (MBS) recent visit to China, officials of the two countries emphasized strengthening relations between the two countries, strengthening the linkage between the two countries’ development strategies, increasing the level of cooperation in the design of the OBOR and noted the willingness of the two countries to adopt a common policy on regional and global issues from other summits.

Before MBS’s visit to China, Iranian Foreign Minister Javad Zarif, along with Iran’s Minister of Petroleum Bijan Namdar Zanganeh and their Parliamentary Speaker Ali Larijani, went to China. Zarif wrote about the visit of the Iranian delegation to China on Twitter, which was the main topic of the talks between the two countries, as “Iran’s role in creating a new silk road, as well as continued political, security and economic cooperation.”

 

During the visit, Zarif and Zanganeh discussed the future of China’s investment in South Pars Phase 11 as well as the continuation of China’s oil imports from Iran. The China National Petroleum Corporation’s (CNPC) withdrawal from South Pars has been a major concern for Iranian authorities, since Iran needs foreign capital and technology to increase its gas production capacity.

The framework of Larijani talks with Chinese officials was the political issues of the region and the fight against terrorism. During this trip, Chinese President Xi Jinping supported the “constructive role of Iran in maintaining peace and stability” in the Middle East and announced Beijing’s readiness to build close ties with Tehran on regional issues. The potential for cooperation between the two countries is high, but at present, the volume of trade between the two countries has fluctuated in recent years from $30 billion to $50 billion. The increase in trade between the two countries has been one of the issues raised by the two countries.

 

Tehran-Beijing Ties

 

The Chinese authorities assured Iran that MBS’s visit to China would not have any effect on Iran-China relations. Maintaining a balance in China’s relations with Iran and Saudi Arabia is of particular importance to Chinese politicians, because its energy security depends to a large extent on the oil coming from these two countries. Another important point is Iran’s influence on Shiite believers and Shiite groups in the region and the influence of Saudi Arabia on the Sunni block of the region has been, and remains, a concern of the Chinese government.

The policy pursued by the Chinese government against the Uighur minority should be arguably Saudi Arabia’s objection. Last week, the Turkish Foreign Ministry spoke of the Turkish government’s formal and strong stance on the Chinese government’s detention camps for the Uighur minority. It should be noted that while China has over 1 million people from the Uighur Muslim minority held in forced labor camps, the preservation of good relations between Riyadh and Beijing and the quest for a greater presence in the Chinese energy market seems to have been more of a concern for the Saudi government. Because of this, it has been silent about China’s policy towards the Uighur Muslim minority.

 

Joining Riyadh’s Program

 

During the visit, MBS called for China to participate in the 2030 Arabian program. Saudi Arabia’s 2030 program focuses more on renewable energy and reduces its dependence on oil exports. Saudi Arabia is leveraging investment to reduce Iran’s role as its competitor. They have been using the energy market in India, and if they want to do so, will not lose sight of this leverage to reduce China’s oil imports from Iran. Although Iran can also maintain its share in the Chinese oil market by offering special discounts to Chinese customers and also insurance on Iranian oil tankers. In previous years, Saudi Arabia has been demanding a boost to its European market by offering a discount to some Iranian oil customers. The competition between Iran and Saudi Arabia in the market for China’s energy will surely be in the interest of China and bring the country the necessary oil under convenient and affordable conditions.

 

Ready to Buy

 

Saudi cartels have always been a favorite of Saudi officials. Saudi officials are ready to buy Chinese drills, Saudi Arabia’s consumer market is a good destination for luxury goods and expensive Chinese companies, and Chinese companies want a more active presence in all commercial and infrastructure sectors of the country. Project 2030 presents an opportunity; it’s a good place for Chinese companies, because Saudi Arabia’s shadow boom does not threaten them. The U.S. sanctions have, despite the potential of all industrial sectors in Iran, prevented Chinese companies from investing in the current situation in Iran. As expected, Saudi Arabia and China signed a $10 billion energy deal during the crown prince’s visit. Under this contract, the Aramco State Oil Company and China’s Norinko Corporation have signed a $10 billion contract to build a refinery and a petrochemical complex in the city of Punjin in northeastern China.

 

After the killing of Jamal Khashoggi and Saudi Arabia’s isolation internationally, MBS’s travels to four Asian countries can signal the importance of Asia in its new foreign policy. Iranian and Saudi officials traveling simultaneously to Beijing indicates that Iran and Saudi Arabia are calling for China’s support in regional and global equations. Given the tensions in relations between Iran and Saudi Arabia in recent years, China can also serve as a mediator for the normalization of relations between Iran and Saudi Arabia.

 

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What do Middle East Energy Markets Hold in Store for 2019?

 

In 2018, the oil market showed great instability, with no apparent balance between supply and demand.

One of the main factors influencing oil prices may be regional political developments, given that the Middle East supplies 70 percent of the world’s oil. In 2018, geopolitical tensions, financial developments, and supply-and-demand triggered a change in the price of oil on the global market, while US President Donald Trump’s tweets also sparked a tense atmosphere.

 

But 2019 is expected to see further fluctuations in the oil market. In recent months, OPEC members have not been able to reach lasting agreement, despite long days of talks, so let’s take a look at the economic situation of major producers – Saudi Arabia, Iran and Iraq.

The latest IMF report explores the developments in the oil market, saying that the economic outlook for oil-exporting countries is largely dependent on the “uncertain future” of oil prices.

The United States has meanwhile unilaterally imposed sanctions on Iran and predicted such measures would “potentially reduce Iranian oil production and exports dramatically for at least the next two years”.

The IMF predicts oil prices will continue to rise to $60 a barrel by 2023. The Organization of Petroleum Exporting Countries (OPEC) and its allies, which account for 55 percent of world oil production, have faced a challenge in their role stabilising the oil market. Saudi Arabia, which has a significant surplus capacity, could not implement the necessary production reductions to maintain oil prices at $70 per barrel.

 

Most OPEC members benefit from oil prices between $70 and $90 – enough to cover domestic budgets, but not so high as to drive investment in alternative fuel sources and technologies, especially renewable energy and electric vehicles.

 

What will happen in Middle East energy markets in 2019? What affect will any price rise/fall have on ordinary people and on regimes?


Iran

One of Tehran’s principal development goals is to achieve a production capacity of 5.7 million barrels of crude oil and gas liquids per day, with a production capacity of more than one billion and 300 million cubic metres of natural gas per day.

 

Exports of Iranian crude oil and gas condensate in the past round of sanctions under the former US administration dropped by about 1.2 million barrels per day over two years, but this did not have a significant impact on oil prices, as the world was facing a surplus of oil supplies between 2014 and 2016.

One of the most important factors in pricing is the state of market equilibrium in terms of the possibility of substituting oil from the market due to sanctions, oil prices and geopolitical factors. Since the reintroduction of US sanctions, Iran’s oil exports have fallen.

Although the export figures for Iranian oil are not officially announced, according to estimates from various sources, during the months of August and September 2018 Iran’s export of crude oil and gas condensates declined between 300 and 600 thousand barrels per day. According to estimates from secondary sources, in the same time, Iran’s crude oil production fell by about 450,000 barrels per day.

 

The US government initially announced that it would attempt to reduce Iran’s oil exports to zero by November 4, 2018, but eventually it was forced to exempt eight countries that imported oil from Iran.

However, there is likely to be a market surplus this year, and Iran’s oil exports will certainly be affected. But, if oil prices continue to decline, the likelihood of a drop in supply from OPEC and non-OPEC producers is high.

 

Iran under sanctions is unable to play an important role in the global oil market and cannot produce or export more oil.

Any increase in the oil price is therefore in favour of Iran. Iran had been producing about 2.5 mbpd in recent months but was expected to drop to about 1 mbpd when January 2019 figures are more fully estimated.

By October 2018, Iran had begun to sell oil in energy exchanges within the private sector to sell more on the regional market. But energy exchanges have not been as successful as expected, and Iranian oil exports will not increase. Since domestic production is in short supply, the export of goods is not affected by the exchange rate – which has a more visible and noticeable effect on Iran’s imports, as all four of Iran’s main economic sectors, agriculture, industry, oil and services, import capital goods, and intermediaries are dependent on the outside world – so rising oil prices can lead to lower prices for domestic products, or falling oil prices lead to higher prices for domestic products.

 

Saudi Arabia



For decades, Saudi Arabia has traditionally played the role of swing producer in the oil market; a producer with enough spare capacity that can quickly change its oil production at no extra cost. But for a long time, Saudi Arabia has not played such a role: the rise in US oil production, along with a host of other factors, has led to a surplus of demand for the oil market, and as a result, oil prices have fallen.

OPEC’s expectation was to cut oil production to increase prices. At OPEC’s annual meetings, Iran, and most OPEC countries, made the same request, while Saudi Arabia and its allies offered another target that was not so wrong: protecting market share.

In October 2014, Saudi Arabia took a different policy towards the oil market and refused to reduce its crude oil production in line with maintaining oil prices, which initially caused great damage to the country’s economy.

 

Saudi Arabia has spent billions of dollars of its own money in order to maintain its share in the global oil market, as well as to force OPEC member and non-member countries to reduce oil production. Speculation about the fall of oil was ripe during this period: Did Saudi Arabia target Iran and Russia, or plan to reduce oil production from unconventional shale, or was there some other story?


Iraq

The proposed $111.9 billion budget, sent to the Iraqi parliament in October, estimated the export of crude oil at 3.8 million barrels per day at $56 per barrel. The proposed budget will increase spending by 23 percent and a deficit of $ 22.8 billion.

This budget will not cover the country’s reconstruction after many years of war, with about 1.8 million people still yet to return to their homes. Part of Mosul, Iraq’s second city, has been destroyed, like many other cities and villages that were in the hands of IS.

 

The Iraqi Ministry of Planning estimates that the country needs about $88 billion to rebuild. In February 2018, donors at the Kuwait Summit promised $30 billion in loans and investment assistance to fund a portion of this budget, but little progress was made. Meanwhile, protests, unemployment and public service disruption have plagued , the southern resource-rich region in recent months.

The interruption of electricity is also a national problem in Iraq and in the south, drinking water is unclean.

The Iraqis chose their new government in early 2018, but the government is influenced by political factions similar to those that have run the country over the past 15 years. Legislators have rejected the draft budget and are demanding a new budget based on an estimate of the level of oil price closure, and more allocated funding for public investment.

While global attention is focused on the destruction caused the wars in northern and western Iraq and protests in the south, the budget crisis is also a major concern for Iraqis living in more stable regions.

 

Half-finished construction projects have remained at a standstill all over Baghdad for years. But after the government declared war on IS, the general budget fell. When oil prices recovered in 2017, the government began to pay instalments on construction mega-projects, but only for those that were mostly completed.

Payments are once again waiting for the outcome of budgetary negotiations. The attempt to diversify the economy has been halted by the rise of domestic political conflicts and corruption, as well as war and instability.

“Our destiny depends on oil. When the [price] goes down, our blood pressure will rise,” said one Iraqi analyst.

During the most recent period of sanctions, Kirkuk oil – along with Russian oil – became an alternative to Iranian oil because of a similar chemical profile. In 2019, Kirkuk oil’s share in Iraq oil exports is likely to increase – and this will not be good news for Iran.

As the global oil market simultaneously sees an increase in Russian, American and Saudi oil production, as well as the maintenance of the quota of Iranian oil with a slight decrease in the market, the world’s oil production rate has  surpassed demand and has become one of the factors behind the fall in commodity prices.
Major oil producers will be hit by declining prices because most of the revenue of these nations comes from oil. Iran under sanctions will unable to sell more, but if prices are to rise, Iran’s damaged economy would stand to benefit.

The US decision to grant exemptions to some of Iran’s oil buyers changed the market dynamics that were already under pressure from three major manufacturers: the US, Russia and Saudi Arabia.

Non-OPEC oil production could yet increase from 1.5 to 2.2 million barrels per day in 2019, with shale being behind the rise. The sharp rise in US production will be a major hindrance to rising oil prices in 2019.

Oil demand will grow between 0.9 and 1.5 million barrels per day in 2019. This figure was between 1.1 to 1.5 million barrels per day in November’s poll. In terms of demand, the main factor is the question of how far economic growth will slow in 2019 and how much lower the demand for oil will be in the coming year.
The IMF expects to see oil prices rising in 2019, which could improve the economic conditions of the Gulf states. Given the trade and economic constraints with Tehran, the economies of Iran’s neighbours will not be subject to a re-imposition of sanctions. Oil-related sanctions against Iran do not make good business sense for foreign companies looking to make investments, and this will make the economic situation worse for Iran.

The worrying global economic downturn has furthered the negative impact of a surplus supply. China’s and India’s oil imports have not yet been enough to offset consumption in other developing countries.

Although the shale gas revolution has serious potential for increased production, and Russia has voluntarily reduced its quota over the past few years by cooperating with OPEC, now Moscow is also seeking to increase production.

 

However, Saudi Arabia, as the third actor in the triangle of production increases, can not, in the long run, increase production beyond its capacity, because its ability to produce a glut of oil is dependent on the Iranian oil industry failing.

Perhaps Moscow and Washington could make headway in this situation for a while, but in Riyadh that potential is basically absent. Of course, it also should be noted that although the global oil market is likely to contract as prices fall, Moscow also must slow its domestic revenues to increase its income – but this cannot be predicted within a specific time frame.

 

www.alaraby.co.uk/

 

 

 

 

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US, Russia Compete for EU Natural Gas Market

The global markets for natural gas and liquefied natural gas (LNG) are currently seeing an increase in the number of new producers. Natural gas’ geopolitical importance is also on the rise and it will increase its share of the energy basket of countries by 2040 as countries with natural gas resources seek to increase their share of the LNG market. The share of natural gas and volatile energy in the global energy market rises every day. In 2016, LNG’s contribution to the global gas market was 42 percent, and according to the International Energy Agency (IEA), will reach 53 percent in 2040.

Of countries that export LNG, Qatar has the largest export share. In 2017, of 264 million tons produced in the world, 77 million tons came from Qatar. Currently, countries such as Australia, Russia, the U.S. and Mozambique have made huge investments in to increase their market share. In the shadow of the shale gas revolution and technology and innovation, the U.S. has quickly become one of the largest manufacturers of LNG, which will soon play an important role in the security of energy in the European Union and East Asian countries.

Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) has not taken place without considering the opportunity to export more energy resources. The United States uses energy exports, especially LNG, to expand its relations with its neighbors and allies everywhere. The energy security of the European Union and its strong dependence on Russian gas have led the United States to take a special look at the European Union energy market, and with the increase in LNG exports and the accelerated construction of the Southern Corridor, gas will require the EU to depend on Russia. Looking at the state of import of Iranian oil and gas condensate from Iran, the U.S. LNG role could be furthered in a boycott of Iran.

The geopolitical dimensions

Energy geopolitics is changing. The shale gas revolution and innovative high technology has enabled the U.S. to become a giant energy exporter. Energy exports play an import role in U.S. foreign policy, and the U.S. is using energy exports to expand relationships with allies. This important step was due to improving its infrastructure, including the development of gas pipelines and LNG facilities for export.

Russia is not interested in losing the EU market and is trying to keep its share in the EU market by diversifying transit pipelines and LNG projects such as Turk Stream and North Stream II. Gazprom also has several pipelines currently in operation or under construction with European energy companies. Gazprom is also preparing a Turk Stream pipeline to transfer Russian gas through the Black Sea to Turkey and southeastern Europe. The U.S. has many times officially declared that it is against North Stream II; this project has been heavily criticized in Europe and the United States, and the German “Trump,” Russia’s largest captive foreign gas buyer, has been “captured” by Russia.

According to Dan Brouillette, the deputy secretary of the U.S. Department of Energy, North Stream II will increase the dependence of Germany and Europe on Russian gas, but recently Germany has decided to help finance the final installations for importing liquefied natural gas that will reduce this dependence.

In October 2018, the largest volume of gas went to Europe, about 24 percent of total [U.S.] LNG: 0.6 billion cubic meters. By 2017, only 10 percent of LNG gas was exported to the European Union. The European Union Energy Commission expects U.S. exports and facilities for LNG terminals to double throughout Europe by 2022. “The fact is that American LNGs can play a more competitive role in supplying gas, increasing the diversity and security of energy in the future,” said the European Union on LNG trade between the United States and Europe in late November.

 

Qatar’s Plan

Early in January, Qatar’s energy minister told Reuters last year, Qatar’s petroleum company plans to invest at least $20 billion in the United States over the next few years and is expected to make its final decision on the LNG terminal concerning the Golden Pass of Texas soon. Qatar is also planning to invest in Germany and export LNG to Germany. According to Qatari officials, it will invest €10 billion in the German economy, which could be the continuation of successful Qatari investments in Germany.

Washington has been encouraging European countries to diversify Russian-dominated energy supplies, with Qatar and the U.S. as possible alternative suppliers. It is in the U.S.’ interest to allow Qatar to export to specific markets. Doha’s supplies play a key role in Washington’s strategy of providing balance in the market.

At present, Qatari gas is a lot more competitive in Europe than U.S. gas. U.S. officials are aware that U.S. LNG is not competitive with Qatar LNG in EU market but what is important for the U.S. is to decrease the dependency of the EU on Russian natural gas and Gazprom’s monopoly in the EU market.

Increasing LNG supplies is the best way to reduce Europe’s dependency on Russian natural gas. Qatar is a major LNG provider and is trying to increase its share in the market. Russia is trying to keep its monopoly in Europe – in energy – and has used different pricing strategies to do this. Russia has sold a stake of its shares in Rosneft to Qatar, as Doha battles a blockade from a Saudi-led coalition. Russia is using a different pricing system in the EU market and has multiplied pipelines and LNG projects to increase and keep its share in EU natural gas market. It is expected that the EU natural gas market will bring a new competition era for the U.S. and Russia. In the short term and midterm, Russia will keep its share in the EU natural gas market, but if in the long term U.S. LNG can compete with Russia gas and Qatar LNG, it would be in favor of the EU as a consumer, and major LNG producers are trying to propose suitable prices to keep or maybe increase their share in the EU market.
www.dailysabah.com
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The Consequences Of U.S. Sanctions For Iran’s Oil Industry

Iran’s energy sector has often been the target of US-led sanctions, particularly in response to the perceived risk of a nuclear weapons program. However, after a brief thaw in relations and the lifting of certain restrictions, the United States imposed a new set of measures against Iran’s oil export industry in November 2018.

In October 2016, the peak of its crude oil exports, Iran was selling 2.44 million barrels a day. In 2017, Iran exports fell to 2.1 million barrels per day, earning revenues of around $40.4 billion. By September 2018, that number had dropped to 1.7 million barrels per day. U.S. policy makers are determined to drive Iran’s oil exports to zero and run Iran’s finances to the ground. Iran, meanwhile, needs to prevent its oil exports from falling below a million barrels per day. At the same time, it is hoping that the lack of supply in the market will increase prices as much as possible to allow for a natural balancing out.

A decrease in energy exports will certainly hurt Iran’s economy, and the government will likely struggle to mitigate the effects on ordinary life. Meanwhile, the United States will increase its own share of the global energy market, boosting its exports of liquefied natural gas to countries such as India and Turkey who would otherwise rely on Iran’s vast and near-by supply.

To continue exporting even at its diminished rate, Iran needs to attract capital and technology. Officials at the Ministry of Petroleum have frankly admitted that they need large amounts of capital to develop and maintain oil and gas fields or else Iran will fall well short of the goals of its sixth development plan. Iran hopes to reduce the national budget’s dependence on oil and gain a capacity of at least 4.7 million barrels, with 1.3 billion cubic meters of natural gas and gas condensate reaching 1.1 million barrels a day.

Iran requires around $100 billion in foreign investment for its oil, gas, and petrochemical sector. Most of Iran’s oil wells are in the second half of their lives, with eight percent of oil production dropping automatically each year. The country needs technology and capital from foreign countries in order to maintain, let alone increase, its oil efficiency. Once new sanctions are in place that target companies interested in investing in Iran, there will be even fewer possibilities for foreign investment. Furthermore, the ban on dollar deals with Iran raises the fear among financial institutions that they will feel the wrath of the Treasury Department.

Most technology-rich countries are interested in the investment opportunities the Iranian energy sector affords, from expanding oil wells to developing oil and gas technologies and petrochemical products. If geopolitics were not an issue, Iran would have many ready buyers for its energy. But Iran currently accounts for less than one percent of world trade in gas, despite its massive reserves.

However, every effort to revive the production capacity of oilfields requires high technology and foreign investment. Iran has signed a deal with the Russian company Zarubezhneft for the redevelopment of the Aban fields. It has also planned to sign contracts with Pertamina, an Indonesian state-run oil company, to operate the Mansouri oil field.

U.S. waivers to eight major Iranian oil importers provide the country with an opportunity to keep its share of the regional oil market for a limited time. However, it is inevitable that most of these countries will reduce oil imports from Iran in the first months of 2019, as all major Iranian oil buyers are looking to find alternatives for their supplies. U.S. sanctions present a steep risk to foreign firms otherwise looking to invest in Iran for they might be deprived of the technical cooperation of American companies and the financial resources of U.S. agencies and the U.S. government.

The U.S. withdrawal from the nuclear accord will undoubtedly hold the Iranian energy industry back from achieving its goals in terms of foreign investment and technology. After the re-imposition of sanctions, only Russian companies seem ready to continue work. Last year, the contract for the development of Aban and Persia Fields was signed with Zarubezhneft, but the Russian company has reportedly walked away from the deal. As recently as last month, meanwhile, Lukoil discussed further investment.

Russian companies are also investing in fields that—critically—provide no threat to Russia’s own energy goals. However, once Russian and Chinese companies begin playing an active role in oil and gas activities in Iran, questions regarding the nature and duration of contracts, and the technology used, will come to the fore—provided that these companies, too, succeed in withstanding U.S. diplomatic pressure.

 

https://lobelog.com

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Iran’s Energy Exchange: What’s the Risk?

More than 18 years since Iran’s Energy Exchange scheme, in which the Iranian Oil Ministry sells resources to its private sector for export, several Gulf states have begun trading oil through the capital market in a similar fashion, yet Iran lags behind. Since US sanctions against the Iranian energy sector were launched, the Iranian government has sought more creative ways of maintaining a stake in regional and global energy market to mitigate the economic fallout of its confrontation with the United States. This is how the Energy Commission of the Islamic Consultative Assembly arrived at the idea of creating an oil stock exchange to encourage the private sector to continue activities with Iran.

Delivering on its Promises

During the Obama Administration, Iran used the concept of energy exchanges to maintain its share in oil market and increased foreign exchange earnings. However, this led to the country missing out on finances thanks to a spat of pay disputes.

 

The Energy Exchange scheme holds many benefits to the country, namely mitigation of sanctions and transparency in the sale of oil. By implementing this law, the government was able to create a new market for domestic oil sales with the help of the private sector as well as other existing capacities in the country to sell oil to traditional foreign customers. Maximum use of formal market power, price flexibility and compliance with supply and demand conditions have led Iran to export Iranian crude oil on the energy exchange, which is an important signal for maintaining Iran’s export position in global markets. This experience demonstrates Iran’s ability to maintain export markets and the variety of terms of sale despite restrictions – provided that price flexibility is made on a formal and transparent market. What is important in this regard should be the importance of the proposed price in the export markets, which is that buyers are still ready to buy crude oil from Iran, and with the flexibility of the export market of the Energy Exchange, the volume of export of crude oil from this platform can even be intensified.

 

Special discounts offered to buyers such as India have constituted another strategy to keep Iran’s share in various markets alongside other strategies such as personally taking on tanker insurance to transit oil shipments to consumers.

Iran’s Oil Targets

Whether the targeting of a daily supply of one million barrels of oil in the energy market is to be achieved, here are two aspects of both domestic and foreign that it seems that it is now possible to process and transform it into domestic products and raw materials for export  However, it should be noted that there is no high technology capability in Iran, and most of the government should increase the processing capacity by supporting investment in small refineries.

 

The supply of crude oil and petroleum products through the stock exchange and the provision of the presence of foreign refineries and buyers of these products can, in addition to increasing the number of contributors, improve the conditions and stability of the sale of oil and petroleum products in the country. Accordingly, the identification and analysis of target markets for the experts in the energy sector of the country is facilitated and planning for the development of petroleum products and its products is more confident.

Determining the bottom line

The price of oil in the energy market should be determined by the supply and demand mechanism of the market, and the change in this pricing method in terms of bureaucracy has created a lot of ambiguity regarding the pricing of oil in the energy bourse. Still, there seems to be hopes for the establishment of a stock exchange after 17 years through the Energy Exchange, and even under the influence of these hopes, some foreign investors have begun trading deals and are awaiting the start of oil deals.

 

During the last bout sanctions, one of the obstacles to physical supply came in regard to the exchange of currency. The Ministry of Petroleum will offer its main products at the Export Exchanges of Energy Exchange; however, the problem has so far been the discussion of currency transfers. Previously, crude oil was supplied to the domestic refineries on the Energy Exchange.

 

Accordingly, Ali Adiani, a member of Parliamentary Energy Commission, claims that the small amount of crude oil supplied to the stock market in 2012 was a failure due to the lack of capacity building for the private sector. However, now with the establishment of consortium, he believes good oil stocks can be made. .

“Over the years, we have been faced with an internal resistance to supplying oil on the energy exchange, because there were few interests associated with the transparency of the supply of oil. However, now the Ministry of Petroleum, Economics, and the Bourdard Stock Exchange are working hard to achieve results.”

Foreign Investment

 

It should be noted that foreign companies are also invited to purchase oil in Iran’s energy exchanges. Iran needs to create a competitive mechanism for energy exchanges, by which foreign companies can pay for oil in Iran in order to be valued for Iran, but the supply mechanism would be such that ports or major refineries deliver oil to the private sector and are declared by vendors in ports at a specified price. The positive result of this mechanism would be to reduce pressure on the government and, given that the private sector is not sanctioned, help improve the circulation of capital in the sector by financing part of the demand. It is expected that neighboring countries will provide the foreign currency needed by Iran.

 

Other issues are on the horizon, however, such as the fact that different types of oil are based on various IPUs; the amount of sulfur, carbon and lead in the content, which countries are specialized in which products; price determinants, and others.

 

 

The government should have begun a process of transferring some of its activities to the private sector a year ago. As a first step, the government should distinguish between the real private sector and those who come in the name of the private sector, such as Babak Zanjani, and damage the country. Indeed, it is important to determine the ownership of consortia, and the government must trust them in the success of the private sector.

 

Many energy experts argue that if the Oil Ministry accepts to supply oil at lower prices, with the intention of taking the command and outside of the conventional supply and demand mechanism, the main function of the stock exchange will be questioned and should be considered a failed project. On the other hand, some oil industry experts say the supply of crude oil on the stock exchange should help the country’s oil exports. So, as long as there is a customer for crude oil on the global consumer markets and can be revenues for the country by selling oil at a price, why should it be offered to stock buyers at lower prices?

 

Iran is enthusiastic about the potential fruits of the project and hopes to use its energy exchange to bypass sanctions, but according to Managing Director of the Energy Exchange, pointing to the core issues of the Tehran Stock Exchange and speculation about the supply of crude oil on the stock exchange, asks “How do we want to create a new software system for oil futures?”

 

 

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Iran and Saudi Arabia Compete for India’s Energy Market

India now has the highest oil and natural gas consumption in the world and will for the foreseeable future. With exorbitant and ever-increasing energy demands, India is under pressure to diversify its energy supply. Iran and Saudi Arabia are now in a race to meet India’s demand in the international oil and gas market.

 

India is the second largest Asian oil consumer after China. In 2017, India was buying 577,000 barrels per day (bpd) of oil from Iran, accounting for 27 percent of Iran’s total crude oil exports. From January to October 2018, India imported 789,000 bpd of oil from Iran, an increase of 36 percent. Iranian officials have offered significant price discounts to India as a strategy to maintain Iran’s share of India’s oil market, and Iran has insured tankers which transport its oil.

 

Saudi Arabia is one of India’s largest oil suppliers, and the second largest supplier of crude oil and liquefied petroleum gas (LPG). In 2016-17, India’s crude oil imports from Saudi Arabia amounted to 18.5 percent of its total imports or 39.5 million tons out of a total of 214 million. From January to October 2018, India imported 697,000 bpd of oil from Saudi Arabia.From Iran’s perspective, India’s investment in multiple sectors of its own domestic market, especially infrastructure and energy, equates to political insurance. India’s investment in Chabahar port is a case in point.

 

In February 2018, during a visit by Hassan Rouhani to New Delhi, India, Iran signed 15 mutual cooperation documents, the majority of which related to oil and gas fields cooperation. After this visit, it was announced that Iran had eliminated the cost of transporting oil to India for the rest of the fiscal year. The decision was made as a response to India reducing its oil imports from Iran between April 2017 and January 2018. The move marked a success for Iranian policy makers, and it was subsequently stated that India would increase its oil imports from Iran.

 

Saudi Investment in India’s Energy Sector

 

Saudi Arabia plays an active role in energy diplomacy in India. Investment in energy infrastructure is an effective way for Saudi Arabia to infiltrate and influence India’s foreign policy decision-making process. Aramco, the world’s largest oil producer, is looking to invest in foreign refineries to meet demand for oil and increase its share of global markets. This is a strategy that will allow Saudi Arabia to expand its share of Asian markets and essentially leave its rivals in the dust. Saudi Arabia is not only competing with Iran politically but aiming to gain an edge over even-more-productive Iraq to become India’s largest oil importer. Last year, Iraq was India’s largest oil importer.

 

In April 2018, Saudi Aramco and India’s Ratnagiri Refinery & Petrochemicals—a joint venture of Indian Oil Corp (IOC.NS), Hindustan Petroleum Corp (HPCL.NS) and Bharat Petroleum Corp (BPCL.NS)—signed a contract worth $44 billion to build a refinery in the state of Maharashtra in western India. The two sides are contributing 50 percent to this project. Saudi Aramco has said the refinery will have a production capacity of 1,200,000 bpd upon completion. Aramco also said the project would be one of the largest refineries of petrochemicals in the world. According to Saudi Energy Minister, Khalid Al-Falih, refining capacity of 60 million tons of crude oil is said to be Saudi Arabia’s only major investment in India. Aramco is also interested in investing in fuel and petrochemical sales as well as oil reserves in India.

 

Saudi Arabia does have the potential to act on this investment promise. Aramco has shipped three million barrels of crude from three refineries in India, and another Indian refinery is currently negotiating with Saudi officials to sign a contract for one million barrels of oil. Political tensions between Iran and Saudi Arabia, especially over the Yemen crisis, but also enflamed by the US’s withdrawal from the Joint Comprehensive Plan of Action, and new sanctions against the Iranian energy sector, have meant that Saudi Arabia is more than capable of seizing the current momentum in its favor to decrease Iran’s role in regional energy markets, especially that of India.

 

Saudi Investment in TAPI Project

 

Afghanistan, Turkmenistan, Pakistan, and India have recently signed multi-billion-dollar investments in the TAPI gas pipeline project. Saudi Arabia has announced it will invest in the construction of a gas pipeline that will transfer Turkmen gas to Pakistan and India through Afghanistan.

 

With the participation of Saudi Arabia in the TAPI energy transfer project, Riyadh, on the one hand, could draw the US’s support for reducing Russian domination of Central Asian energy resources (through increasing export routes around Russia). On the other hand, with this increase in engagement in the Central Asian energy region, it may be possible for Riyadh to gain concessions in future energy talks, especially in the context of global oil policy, to control the global price of energy carriers.

Security concerns and financial resources pose the main obstacles to realizing the TAPI project, yet Saudi Arabia’s support for the project is merely another instrument to circumvent Iranian power and influence. Saudi Arabia is directly investing in India’s energy infrastructure, as well as offering political and economic support for transportation projects which allow access to the Indian market by side-stepping Iran.

 

For India, the American market is thus more attractive. With the US-imposed sanctions in place, Saudi Arabia is likely to become India’s largest oil supplier. At the same time, however, India will greatly increase its imports from Iraq. Even Nigeria has gained access, so insatiable for fuel is India’s current phase of development. Most oil producing countries have increased their exports to India across the board.

 

As expected, the U.S. has granted waivers to major buyers of Iranian oil in India and allowed them to continue imports beyond the U.S. sanctions deadline. It will not be easy for India to find an alternative to Iranian oil, but it does not mean that in the mid-term or long-term it will be impossible for India to figure out some long-standing arrangement. Saudi Arabia and Iraq are poised to make up the bulk of India’s oil needs. Saudi Arabia is more interested in exporting oil to India in order to weakening Iran’s position in its oil market, with the added bonus of making a dent in the Iranian economy.

 

India and China are interested in establishing an “Oil Buyer’s Club,” to increase their bargaining power and reduce the power of the U.S. oil market by also importing crude from the U.S. China and India had previously proposed to buy Iranian oil in exchange for being paid in Yuan and Rupees.

 

Iran’s main issue (among many) is to be available to attract foreign investment when it does have the chance to bypass sanctions, and this requires an accommodating legal framework, an efficient and fast decision process, and political stability (especially in the international context). These variables are far from being achieved, and the country has a long road ahead.

 

Iran and Saudi Arabia Compete for India’s Energy Market

 

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Iranian-Omani Gas Pipeline: A Link for Iran to the World?

To meet its growing energy needs, Oman is looking to increase its natural gas supply above the current levels of imports brought in from Qatar via the Dolphin pipeline. While Oman also exports significant volumes of natural gas from its liquefied natural gas (LNG) facilities, it has had to devote significant amounts of its own production to domestic demand. What are the prospects for Iranian natural gas to reach Oman and global markets through the anticipated Iranian-Omani gas pipeline project?

 

Iran, which has the second largest natural gas reserves in the world, has plans to increase its exports of natural gas to other countries. At present, despite this major advantage, the country presides over a share of less than 1 percent of the world’s natural gas market. Nevertheless exporting natural gas to its neighbors is one of Iran’s priorities for the future. Iran’s export of oil and gas to its neighbors would help the region’s states resolve their problems and would promote peace and stability in the region. The Iranian-Omani natural gas pipeline would provide Iran a significant opportunity to export gas to Oman, as well as to other countries.

Iranian-Omani Natural Gas Pipeline

Natural gas consumption in the Sultanate of Oman more than doubled in the decade leading up to 2016.

Natural gas consumption in the Sultanate of Oman more than doubled in the decade leading up to 2016. Recognizing Oman’s increasing demand, in 2013, Iran and Oman signed a memorandum of understanding to build a new pipeline to export Iranian natural gas directly through the Gulf to Oman. The $25 billion agreement promised gas supplies to Oman via the construction of a subsea pipeline. While the pipeline construction was subsequently halted, the project now has a new deadline for its hoped-for completion by 2020.

The ultimate anticipated capacity of this new pipeline, called the Iranian-Omani pipeline, is 1.5 billion cubic feet (Bcf) of gas to be pumped into Oman every day. The Iranian-Omani pipeline would deliver some of the gas for processing at the Al-Anjui processing plant to send on to target markets in Oman, while the remaining pipeline capacity would be allocated to future markets in the Gulf.

A portion of the gas to be transported through the pipeline is anticipated to be converted into LNG to be shipped to target markets in East Asia and Europe. The remaining pipeline capacity will be allocated to future markets in the Gulf states. The project, long anticipated, was initially estimated at a cost of $1.2 billion, with initial volumes of 30 million cubic feet (MMcf) per day of natural gas to be transported from Iran’s Kuh Mobarak port to Oman’s port of Sohar.

Iran’s oil minister has stated that the country hopes to export Iranian natural gas to other countries of the region, especially Asian countries, through Oman. After the Joint Comprehensive Plan of Action (“JCPOA”) nuclear agreement was reached in 2015, Iran invited foreign energy firms to invest in Iran’s energy projects, and especially the Iranian-Omani pipeline. In 2017, Iran officially invited Russia to build a gas pipeline to Oman. Ali Karder, the Deputy Oil Minister and CEO of the National Iranian Oil Company, invited Gazprom to lead construction efforts.

In September 2018, Bijan Zanganeh, the oil minister of Iran, met with his Omani counterpart. The result was an agreement to build a natural gas pipeline with a capacity of 1 Bcf per day—equivalent to 28 million cubic meters per day, or 10 billion cubic meters annually from Iran. The monetary value to Iran of this volume would range from around $1.5 million to $2 million.

Due to the United Arab Emirate (UAE)’s opposition to the pipeline crossing through its shallows, the pipeline is now expected to traverse the deeper waters of the Oman Sea, which will increase the cost and time frame for construction. Technology for the construction and installation of a pipeline is also problematic. Iranian companies are not experienced in installing pipeline in waters deeper than 1000 meters, thus making the involvement of an international partner essential for the project’s success.

Initial talks on a joint gas project with Iran were launched in 2004, but because Iran’s gas balance was not positive and consumption outweighed production at the time, negotiations then were hypothetical, at best. But with the arrival of the eleventh government and new phases of the South Pars Fields boosting Iran’s natural gas production, exports to other countries were put back on the agenda, with 92 rounds of rigorous negotiations ending in the signing of a final agreement.

Effect of Sanctions

In first months of 2018, with the benefits of the JCPOA nuclear agreement still formally in place, a joint work plan for the sale of gas to Oman from the Kish Gas Field was signed at the joint meeting of the Iranian oil industry with various ministers from Oman. The volume of the Kish field reserves is estimated at around 48 trillion cubic feet of gas.

Renewed U.S. sanctions against the Iranian energy sector will affect energy projects such as the Iranian-Omani pipeline, and bring along other practical challenges. Oman is banking on U.S. sanctions only applying to Iran’s oil exports and not to exports of natural gas. Oman’s Oil Minister, Mohammed Al-Ramhi, has stated that the country will continue to import gas from Iran, despite sanctions from the U.S. and that the pipeline project will go ahead.

Natural gas is stored in Oman either to fill reserves or to be sent off to target markets. As Oman has sought to diversify its economic prospects in the last few years, following a decline in its natural gas production and a shortage of gas, as well as other economic shortfalls, the proposed pipeline with Iran is part of this strategy.

Iran is expected to add a substantial amount of pipeline infrastructure across the Middle East in the coming years by building 12,698 kilometers (km) of planned pipelines by 2022.

Iran is expected to add a substantial amount of pipeline infrastructure across the Middle East in the coming years by building 12,698 kilometers (km) of planned pipelines by 2022. According to Global, the distance of the route planned for the Iranian-Omani pipeline is 50 percent of Iran’s overall projected pipeline. Second to Iran comes Iraq in terms of planned pipelines, which plans to invest $29.6 billion by 2022 by adding 5,105 km of oil and gas pipelines. Turkey comes in third place with a planned 2,030 km of pipeline at a cost of around $5.8 billion.

Iran needs to diversify its exports to the same degree that Oman needs natural gas imports to offset its energy shortages. As of 2014, Oman imported about 73 Bcf of natural gas from Qatar through the Dolphin pipeline, which runs from Qatar to Oman via the UAE, but it planned to phase out such imports when Phase 1 of the Khazzan tight gas field in Oman, operated by BP, commenced production in 2017. The Khazzan field commenced operations in Q4 2017, but it is still too early to tell how it will impact Oman’s imports in the longer term.

What Does the Future Hold?

While Oman’s economic development is based on energy-dependency, there are also political and geopolitical considerations at play. The gas pipeline between Iran and Oman is the bridge between Iran and the Gulf Cooperation Council (GCC) countries. Because it most certainly will not be limited only to exporting Iranian gas to Oman, Iran will likely export gas to other countries via Oman as an intermediary. If this strategy succeeds, then another line may be built parallel to this pipeline in the long-term.

Trouble may be in store from the GCC countries, naturally suspicious of Iranian products entering their market. On the other hand, Oman has always pursued an independent policy, despite its membership in the Council. Its pipeline construction policy undoubtedly will follow that tradition. By creating a possible opportunity for dialogue between Iran and the United States, Oman may even benefit politically from the move. Oman has always pursued a policy of tolerance and peaceful coexistence with the countries of the region and resolving issues through dialogue and mediation. Although it faces pressure and problems from its neighboring countries, its policy has continued steadfast despite opposition.

In 2017, a number of meetings were convened in which Indian, Iranian, and Omani officials discussed Iranian gas being transported to India via the Iran-Oman pipeline in order to offset the impact of U.S. sanctions and to allow Iran access to one of its key consumers. As of the end of 2018, however, there has been no major progress on the Iranian-Omani pipeline, and thus any talk of further exports to India via the project is at present just a pipe dream.

Although the technology to manufacture and install pipelines in a shallow sea bed is available to Iranian companies, Iran would certainly jump at the chance to use international technology and financial capital to complete the Iranian-Omani pipeline given its inexperience with projects deeper than 1000 meters. LNG exports comprise one of Iran’s main plans to export natural gas to the European Union (EU) market.  

The Iranian-Omani pipeline project would be an ingenious way to realize this goal. Iran requires further financial capital and technology, however, to build the required infrastructure to export natural gas to the EU and to Iran’s other future target energy markets. However, given the sanctions, no major foreign energy firms are likely to provide the financial or other support needed in the short-term.

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