Iran Japan

Japan prime minister to visit Tehran, with energy security the main concern

As Japan looks to ensure security in the region, it could play a vital role in negotiating between Iran and the US.

Japan is the third-largest economy in the world, needing a regular supply of energy from reliable sources and routes. 

The diversification of energy resources is, therefore, a key pillar of Japan’s energy policy, in particular as it imports most of its oil from the Middle East. Saudi Arabia is Japan’s main oil supplier and besides Saudi Arabia, the UAE, Russia, Kuwait, Qatar and Iran supply additional oil.  Stability and peace in the region directly affect Japan’s energy security and economy.

Any tension or conflict in the region from which Japan imports energy or on a route it travels may increase the oil price, resulting in a significant negative impact on Japan’s economy as well as other major oil importers. Japan is therefore attempting to play an active diplomatic role in the Middle East to decrease the impact of tensions in the region. As the fourth largest consumer and importer of oil in the world, the largest importer of liquid gas (LNG) and the second largest importer of coal after China, it has no choice but to mediate regional Middle Eastern risks.

Japan’s major oil suppliers

In 2018, Saudi Arabia and the United Arab Emirates were the largest suppliers of oil to Japan with Iran coming in sixth. According to Japan’s Ministry of Finance, its crude imports from Iran dropped 42 percent in April compared to March, reaching 169,000 barrels a day on average. In March, the country imported an average of 292,000 barrels of oil a day from Iran. In February, Japan’s oil imports from Iran reached 76,000 bpd. At the time of Iran’s sanctions waivers the government of Japan extended insurance of state-owned oil imports from Iran for one year. This was the Japanese government’s move to encourage its refineries to continue importing oil from Iran.

Zarif’s Visit to Japan

During the last few months, Iran has begun to actively lobby diplomatically to increase its relations with major Iranian oil buyers; Iran does not want to lose its share in regional and world oil markets. Last month Iran’s Foreign Minister, Mohamad Javad Zarif, visited Tokyo and met with Japanese Prime Minster Shinzo Abe and Foreign Minister Taro Kono.

Taro Kono in his press conference after meeting with Zarid said: “We are very worried about the Middle East and will not hesitate to try to reduce tensions and resolve confrontations.” He emphasised that Iran needs to continue to uphold its commitments under the Iran Nuclear Deal, urging Iran to maintain its implementation. Zarif, at a meeting with his Japanese counterpart, said that Iran continues to honour its commitments under the Iran Nuclear Deal, despite US withdrawal from it. During his trip to Japan, the Iranian foreign minister told reporters that there is no way to negotiate with the United States. Zarif had set the goal of his trip to Japan to confront the “tension” of the United States.

Trump’s Visit to Japan

Japan is one of America’s closest allies. President Donald Trump visited Japan recently meeting with Japanese Emperor Naruhito and Shinzo Abe. Trump, in his joint press conference with the prime minister, asked Japanese businessmen to make more investments in the US. North Korea and Iran were also major topics which Trump focused on in his meeting with Shinzo Abe. Trump in his visit to Japan, said of Shinzo Abe’s visit to Iran: “I know that both Japan and its prime minister have good relations with Iran. We will see what will happen.”

Japan’s private and state-led companies with high technology and enough financial capabilities hold the potential to invest in Iranian infrastructure and oil and gas fields. Iran needs billions to recover its oil and gas production capacity; due to sanctions after the 1979 revolution Iranian oil and gas production capacity dramatically decreased, and without foreign technology and financial capability it will not be easy for Iran to increase oil and gas production capacity. Iran’s petrochemical and refinery sectors also need foreign investment due to ageing infrastructure the majority of petrochemical and refineries need to be repaired.

Shinzo Abe to visit Tehran

The relationship between Tehran and Tokyo has always been peaceful and based on mutual respect. One of the focuses of economic cooperation between Iran and Japan after the expansion of relations between the two countries in recent decades has been the issue of energy and contracts for oil and gas.

Shinzo Abe’s trip to Iran will be the first visit by a Japanese prime minister in over 40 years and has become particularly important regarding intensive diplomacy between Iran and the United States and tensions in the region. The continuation of energy imports from Iran is not the main concern for the Japanese government. The country can easily find an alternative to Iran’s oil and gas condensate, countries such as Saudi Arabia, Kuwait and the Emirates can easily meet the needs of the Japanese energy market. LNG imports from Qatar and the United States could also replace Iran’s gas condensate in the Japanese energy market.

Japan’s energy security will not be affected by US sanctions against Iran’s oil exports. However, any possible agreement between Iran and the United States will be in the interest of Japan. With the abolition of sanctions, Japanese companies can invest in oil and gas fields, refineries, and renewable energy in Iran. The country’s products will also have a greater chance of selling in the Iranian consumer market.

Is it possible for Japan to be mediator between Iran and US?

Japan’s major concern is decreasing the likelihood of conflict and tension in the region. The tensions and conflicts in the energy supply countries of Japan, as well as the routes that bring oil and gas resources to the Japanese market, have a direct impact on the security of energy and economic growth in the country. The major import of Japanese oil from Saudi Arabia, the UAE and Kuwait, and any military engagement in the region, especially in the Strait of Hormuz, directly threatens not only the energy security, but also the economy of the country. Any possible conflict in the region would mean an increase in oil prices, which would not be pleasant for the economy of major energy consumers, including Japan.

Given that the 12 pre-conditions by US Secretary of State Mike Pompeo have not yet been eliminated, if the talks are negotiated with Japan’s possible mediation, it would be difficult to reach an understanding between Iran and the United States in the current situation. If Iran and US officially choose Japan as mediator, it could play an important role.

It should be noted that negotiation without a precondition is different from the new agreement without a precondition. It is hoped that with Shinzo Abe’s trip, the tension in the region will be somewhat reduced.

Any conflict in the region and insecurity for oil tankers would be detrimental to all energy producers and consumers in the region. Shinzo Abe’s visit to Tehran will increase Japan’s role and political presence in the region and will enable Japan to play a role in stabilising security in the region. 


https://www.trtworld.com/

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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 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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The Reason Why Iran Won’t Become an Energy Superpower

Tehran has a high domestic natural gas consumption and needs more foreign technology and financial capital.

In recent years, the Turkmen government has refused to toe the line of the United States and Europe, continuing gas sales to Iran, despite misunderstandings over costs affecting the economic relations of both countries. These issues must be ironed out once and for all if any increase in ties is to be realized at a time when Iran desperately needs allies in the region.

According to 2017 figures, the volume of trade between Iran and Turkmenistan has already grown to a value of $1.7 billion. Mahmoud Vazei, the Iranian president’s chief of staff, has set out the goal of pushing this to an overall value of $60 billion. The roadmap to achieve this goal requires boosting ties across every industry, improving trade, transport and engineering service links. Oil products, petrochemicals, electricity, textile products and light industry are the most important export items Turkmenistan is equipped to provide to Iran. Thus, Turkmenistan is Iran’s strongest partner in Central Asia and the Caucasus, despite a decline in trade over recent years.

The cooperation between the two countries involves gas swaps, the development of banking cooperation and technical and engineering services, with further progress expected on the Sarkhas Bridge, which will allow for road and rail links to become operational within a short time.

Gas Dispute

According to an agreement signed in 1997, Turkmenistan exports gas to Iran, but almost every year during the winter months, short-term price hikes are experienced. In 2006, the country stopped exporting gas to Iran and demanded an increase of nine times the price, which Iran accepted for a brief time. The same action was taken by Turkmenistan in the winter of 2016, but this time Iran refused to comply.

Referring to Iran’s plan to sue Turkmenistan’s Turkmen Gas company for the quality of the gas supplied, the Iranian Minister of Oil stated, “We have another complaint the International Arbitration Court in order to reconsider the price of its export gas, because we believe the prices are too high and should be reduced.”

The gas dispute between Iran and Turkmenistan, which has only been inflamed since the beginning of 2017 when the country once more cut off gas exports to Iran, has come to no compromise despite periodic negotiations. It is most likely that the dispute will be referred to the International Arbitration Tribunal. The threat of cutting gas exports to Iran is a tool that Turkmenistan has used many times over the past few years. Indeed, in recent years, given the need of the northern and northeastern regions of Iran to pump extra gas from Turkmenistan, Tehran often folded to demands. However, due to the increase in gas production in South Pars and entering of the eleventh stage of the gas transmission network, the latest threats and ultimate cuts were far less effective. Therefore, after Turkmen gas was cut off in January 2017, Iran announced that ultimately it would be Turkmenistan who missed out from the action.

While Turkmenistan has demanded between $1.5 billion to $1.8 billion from Iran for gas exports in 2006–2007, Iran has not accepted the figure on principle, and calls for referral to international arbitration. In January of 2007, when the cold of the winter peaked and more than twenty provinces of the country suffered freezing temperatures, Turkmenistan took advantage of the situation and announced that it would raise its export gas prices to Iran by nine times the price. Forty dollars per thousand cubic meters was thus risen to 360 dollars, and the extent of this hike marks the crux of Iranian policymakers’ anger.

Furthermore, with sanctions making it difficult to carry out the banking transactions required to make payments, the ability of Iran to make such payments has fallen into question, which may lead to the subject being shelved for the time being.

Gas Swap

The gas transmission capacity of this pipeline is 14.5 billion cubic meters per year. Iran imported about nine billion cubic meters of gas from Turkmenistan in 2015, but in the winter of 2016, Turkmenistan cut gas exports to the Iran due to Iran’s $ 1.8 billion debt. Thus, Iran only received around six billion cubic meters of gas.

Since the beginning of 2018, Turkmenistan has continued to withhold gas exports to Iran due to what it calls the “nine-year delay in Tehran’s $ 1.8 billion debt settlement.” Despite this export restriction, a gas swap has continued. Since October last year, Iran has received Turkmen gas under the so-called Swap Agreement, delivering the same amount of gas to the Republic of Azerbaijan.

One month after the cutting of Turkmen gas supplies to Iran, officials of the Islamic Republic claimed Turkmen gas was still being swapped regardless. The Ministry of Oil has expressed to Turkmenistan its willingness to engage in a long-term cooperation in the energy sector as well as joint exports to India, Pakistan and the Gulf states.

New talks regarding a potential gas swap between Turkmenistan and two Indian companies, Gil and Indian Ocean, were discussed in Tehran. The talks resulted in a contract agreement to supply India with gas through a maritime pipeline. Turkmenistan, on the other hand, wants to export gas to India in a more affordable and secure manner, which can only be achieved through joint bilateral negotiations between Turkmenistan, Iran, and India. Turkmenistan has welcomed plans to launch the construction of a pipeline and called for its gas to once more funnel through Iranian pipes.

The increase of production in joint fields is a priority for Iran, which is missing out due to vastly better investments in fields along its borders with Iraq and Gulf states. Investments in fields shared with Turkmenistan have a strong chance of yielding fruitful results. The priority is to exploit common gas fields in the north and northeast part of the country where it can be immediately consumed at minimal transit costs. According to Bijan Zanganeh, “The joint fields of Iran and Turkmenistan are Iran’s priority, this is now an Iranian exploration project, and Iran hopes that the results of these studies will be sent to the Central Oil Company.” The policies of the Ministry of Oil include joint projects in the fields of oil, gas and petrochemicals with neighboring countries. Therefore, Iran is ready to carry out design, construction of oil and gas transmission lines, pressure-boosting stations, refining and separating liquids from gas and converting them to other petrochemical products, and to negotiate with Turkmenistan in the same way.

With new sanctions back in place, Iran now has no opportunity to increase its swap capacity with Turkmenistan. Additionally, it cannot expect to have great amounts of investment opportunities to explore. India was interested in importing Turkmen gas via Iran’s infrastructure, but now it seems intent to wait until Iran’s problems with the United States are resolved. Iran can, on the one hand, rely on its political, cultural, and economic capacities to provide a stronger basis for its economic relations with its neighbors. But that means Iran has to know when to pay attention. Turkmenistan’s foreign-policy priority focuses on cooperation with its neighbors, including Iran, which Turkmenistan’s president has signaled on various occasions. On the other hand, Iran must seek solutions for more reliable contracts than those based on oil or limited gas transfers to Turkmenistan. Long-term contracts with a clear and workable system of pricing would go a good way towards achieving this.

Under normal circumstances, Iran’s energy infrastructure could transfer oil and gas from the Caspian Sea to consumer markets across the globe. As it is, the country is struggling under sanctions. It now relies on production from the South Pars and other gas fields which, despite being sufficient to fuel current domestic demands, may fall behind and once again make imports from Turkmenistan necessary. Iran has a high domestic natural gas consumption and needs more foreign technology and financial capital. Easing tensions with the international community is the best—and perhaps the only—tool for Iran to achieve its own interests. In sum, despite existing cooperation, there are still many areas in the energy sector that can be used to promote bilateral relations in the interests of both neighbors, but the expansion of cooperation depends on solving the challenges and making the most of the opportunities that come.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, and Ph.D. Candidate in International Relations at Yalova University, Turkey.

www.nationalinterest.org

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Challenges and Opportunities for Russia-Iranian Energy Relations in the Post Sanctions Era

Given several large Russian companies find themselves facing US sanctions they no longer face any further fall-out from working reliably in Iran. Indeed, Russian companies may continue their business in Iran’s oil, gas, and nuclear sectors unimpeded having already adapted to whatever curtailments have been inflicted upon them by US measures.

The purchase of Iranian oil by Russia is a significant aspect of the oil co-operation agreement struck between the two countries. At a meeting convened between Iran’s Oil Minister Bijan Zanganeh and Russia’s Energy Minister, Alexander Novak in late December 2016, Iran agreed that a Russian company would sell Iranian oil, with 50% of profits handed to Russia in cash in Iran, and another 50% spent on purchasing goods and services from Russia to be put into operation in Iran.

Russia evidently desires a place in Iran’s oil industry. As the presidential aide, Yuri Ushakov recently stated, the country’s oil and gas companies are looking to invest in as much as a total of $50 billion to develop Iranian oil and gas fields. In his view, energy is the most promising area for cooperation between Russia and Iran; with leading Russian oil and gas companies such as Gazprom, Gazprom Oil, Rosneft, Zarubenzabad and Tatneft all having shown an active interest.

 

Russian firms’ withdrawal from Iran considering US withdrawal from JCPOA

 

Lukoil has joined others to halt activities in Iran since the departure of the US. The company had signed a mutually agreed partnership for the development of the Ab-Teymor oil field with Denmark’s Mersec, and the Indonesian Petrogas Vitamin Corporation.Regarding the company’s plans for the Iranian gas industry, the Deputy Chairman Gazprom, Alexander Medvedev, stated that “Gazprom is interested in cooperating with Iran from the beginning to the end of the gas value chain and plans to help in exploration, production, gas, LNG production, and gas supply through various pipelines, including those leading to India.”

After the nuclear agreement, Russia’s Zarubzhanov Corporation (with an 80% share), along with Dana Energy (with a 20% shareholding), signed a $742 million contract for the sustainable development of the West and Aban Oil Fields in Ilam province in partnership with the National Iranian Oil Company. The contract is set to stand for 10 years and can be renewed for up to 20. The combined production of these two fields is expected to increase by 67 million barrels over the next 10 years.

While Ali Akbar Velayati , an advisor to the Supreme Leader of the Islamic Republic, has said that Russian companies are ready to invest in the Iranian oil and gas industry by as much as $50 billion, one Kremlin spokesman has denied these statements, and the Russian Energy Minister has claimed that purchasing Iranian oil may have a negative consequence on Russian industries. At present, trade volume between Iran and Russia values just $2.2 billion, however, both countries hold a potential to increase their trade volume. Iran and Russia are both interested in increasing trade to $10 billion dollars in the short term. The question remains, none-the-less, as to whether Russia’s overtures in Iran amount to nothing short of investment.

Oil for food trade

During the last sanctions regime, both countries signed an agreement to sell Iranian oil to Russia in return for goods and technology. By importing 500 000 barrels of oil a day from Iran, Russian not only parted with no money, but were able to sell more of their goods to Iran. Also, since Iran’s oil is not compatible with oil refineries in Europe – or even most within Russia – this oil was most likely transferred from Russia to China, Iran’s largest oil market, other countries in the South or East Asia. In this way, Russia was thus able to expand its own oil relations.

Iran’s strategy of signing contracts for oil development with Russia is not unwise given the absence of any other serious player. Rouhani’s government has been weak in the development of oil fields over the past five years. It is true that his cause should be sought through foreign policy and an attempt to ease the pressure of the United States, but, in any case, its outcome has been detrimental. Russian companies have the technology needed to increase the recovery rate of Iranian oil reservoirs. The Oil Ministry is keen to allow oil companies in Europe, Russia, China, Asia, and even the Americas (Americans are currently barred) to get involved in the development of Iranian oil fields.

Oil exports are the result of production, minus domestic consumption, however, oil production in Iran is gradually decreasing as a result of the decline in the production of the reservoir. The drop in the production of Iranian oil reserves is currently around 8%. The biggest issue regarding Chinese and Russian investment in the Iranian energy industry after the lifting of sanctions would be the terms of the contracts concluded – namely, the duration of these contracts, and the amount of contracts and technology used in these oil and gas fields, not to mention conditions which increase the likelihood of companies to bow to US pressures To abandon Iranian projects.

Considering developments in the energy market more broadly, and the effect US sanctions will have upon it, attracting foreign investment and technology to the Iranian energy industry will be much harder to achieve. Achieving the goals of Iran’s sixth development plan and vision document is possible only through foreign investment, which requires a reduction of political risk in the country through a more engaging foreign policy and greater consideration of legal mechanisms to assure foreign investors.

For the foreseeable future, however, it looks as though talks will remain at the macro level until a deal has been signed. Although details of the $50 billion investment of Russian oil and gas companies in Iran have yet to be determined, this would provide a sigh of relief for the country’s industry. Many insist that such an investment would not equate to dependency on Russia. One expert has stated that “The Iranian oil and gas facilities and resources are so broad that even if $50 billion of capital is from companies Iran’s oil industry is not looking for a mere dependence on a country. The Russians will be brought to Iran; but there will be plenty of work remaining that will capture technology and foreign capital from other countries.

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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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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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