Iran and Azerbaijan share oil fields, so what’s stopping Tehran from drilling?

Iranian-Azerbaijani energy relations go back to the 1990s collapse of the Soviet Union. Both countries hold large reserves of oil and gas, and Azerbaijan has used an active energy and foreign policy to carve itself a place on the world energy market.

 

The Baku-Tblisi-Ceyhan pipeline project was the first major step for Azerbaijan in this endeavor. Both countries are interested in developing successful bilateral relations based on energy. Iran hopes to use the infrastructure of Azerbaijan, particularly the Baku-Tbilisi-Ceyhan pipeline to export its oil.

 

Iran also hopes to join the Trans-Anatolian Gas Pipeline project in the future. However, at present, Iran has not enough natural gas to export to the EU or other countries.

 

Azerbaijan has also called on Iran to use its natural gas storage for use in times of increased consumption.

 

Shared fields in the Caspian Sea represent a potential basis for future cooperation. Azerbaijan has also invested in Iranian renewables as another potential platform for partnerships.

Iran is the only state in the Caspian Sea area which has no oil and gas activities in that region. This is due partly to the fact that the majority of Iranian oil and gas fields are located in its southern half and offshore in the Gulf.

 

Shared fields in the Caspian Sea here represent

a potential basis for future cooperation

 

The ability to harness the Caspian’s reserves is not just an issue of procurement but also about distribution pipelines, thus meaning further efforts are needed in conjunction with other nations.

 

Iran’s Caspian field, Sardar-e Jangal, was discovered in 2001. According to initial estimates, this field holds 50bcm of natural gas and 2bb of oil – of which Iran could expect to obtain 500 million barrels. After the signing of the nuclear agreement, Iran offered four projects in the Caspian Sea, blocks 24, 26 and 29, as well as the Sardar-e Jangal oil field, to foreign companies for exploration and development.

 

The development plan for the deep-water Sardar-e Jangal oil field is said to cost in the range of $7-10 billion, with Iran open to foreign investment for the project. Similarly, Iran has also invited foreign companies to invest in other fields. Iran is ready to attract foreign investment, and has frequently assured foreign companies with guarantees of the security of their investments – though such guarantees are constantly weighed up by investors vis-à-vis international developments in Iran’s foreign policy.

 

After the nuclear agreement was signed, Iran invited foreign companies to invest in its oil fields, with NIOC and Norway’s ORG signing a memorandum to study feasibility, as well as in three exploration blocks in the Caspian Sea. However, this agreement has so far resulted in little by way of actual progress.In a visit to Tehran by Azerbaijani President Ilham Aliyev in April 2018, leaders of both countries signed a Memorandum of Understanding on the “Joint Development of Relevant Blocks of the Caspian Sea”.

 

This followed a visit to Baku by President Rouhani in March, during which both sides signed a protocol in agreeing that Iran’s state-run NIOC and Azerbaijan’s SOCAR would recover oil on a 50-50 basis. The Khazar Exploration and Production Company (KEPCO) was tasked by the NIOC to improve Iran’s share of oil and gas fields in the Caspian Sea.

 

According to the document, a joint oil company would be established between the two countries, with the Alborz and Alvand fields identified as common areas in which Iran and Azerbaijan could enjoy an equal share.Iran has divided its exploration area in the Caspian into 46 blocks, eight of which have been given priority. Two blocks are shared with Azerbaijan.

 

Iran, between 2003 and 2005, carried out seismic tests across more than 4,000 square kilometres of the Caspian Sea at blocks 6, 7, 8 and 21. According to Mohsen Delvaz, CEO of KEPCO, Iran still need more exploration in order to have a clear estimate of how much capital will be required to launch extraction operations.

 

However, preliminary estimates indicate that at least $10 billion will be needed for the joint Iranian-Azeri oil field and between $7 and $10 billion for the Sardar-e Jangal field.

 

Iran is, again, open to foreign investment for the development in order to meet these heavy costs. But foreign companies remain wary, given the re-imposition of US sanctions on Iran.

One energy expert has pointed out that the Alborz and Alvand fields mark the first successful step towards stabilising Iran’s energy rights in the Caspian Sea, but the recent agreement has also been a cause for uncertainty.The challenges for Iran in extracting hydrocarbon resources from the Caspian Sea mainly draw from concerns about the depth of its waters and the land-locked nature of the sea. This results in a lack of connection with open water, operational restrictions related to transportation of equipment, the changing climate, the very difficult and complex nature of providing support due to distance from the coast, as well as the cost and risk of exploration operations, a lack of background in fleet maintenance and offshore services, and technological sanctions.

 

Iran has a lot of experience in the development and production of hydrocarbon fields

in the offshore sector

 

Of course, Iran has a lot of experience in the development and production of hydrocarbon fields in the offshore sector in general, but these experiences are of a completely different nature in the southern parts of the country and in the Gulf.

The Caspian Sea, due to its depth, requires special conditions at all stages of drilling, development, production and transfer.

 

The sanctions regime represents the over-riding issue in these challenges. It is possible for Iran to sign agreements with Chinese and Russian energy firms to invest in joint fields in the Caspian Sea, yet deals with China have so far failed to materialise.

 

Azerbaijan is far more active than Iran in the Caspian Sea. This is to expected, since the US withdrawal from the JCPOA allowed Azerbaijan to attract foreign technology and capital for extraction from a joint field with Iran, playing an important role in the regional energy market at Iran’s expense.

 

Furthermore, Azerbaijan can bolster EU energy security via the TANAP and TAP projects – of which Iran is not yet a part.Geological and financial problems will continue to plague Iranian efforts, yet an active regional foreign and energy diplomacy could yet lead to breakthroughs.

 

Chinese companies would not be the best option for Iran in terms of the Caspian, due to financial requirements and insufficient experience in deep water.The crucial issue is to resolve the tension with the west – and this requires engagement with the US. Without foreign financial capabilities and technology, Iran will face serious problems in playing a key role in the regional energy market and producing more oil and gas from joint fields, let alone those over which it has full sovereignty.

 

Read More

The Future Of Iran-Pakistan Energy Relations

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

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

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

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

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

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

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

www.lobelog.com

Read More

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/

Read More

Tanker Insurance Cancellations threaten Iranian energy sector

The US’ withdrawal from the JCPOA and declaration of a new set of sanctions has been hard to swallow for those planning Iran’s energy sector, as they had been relying on the deal as a means of revivifying Iran’s oil and gas production capacity. These new sanctions are set to be implemented against Iran’s oil and gas sector on November 4. This is likely to have ahuge impact on Iran’s coffers, with insurers reportedly already halting coverage for shipments.

Following the announcement of a resumption of sanctions against Iran, owners of oil tankers were some of the first to start refusing trade with the country. When the previous round of sanctions against Iran was first established, tanker insurance was considered one of the main barriers to Iranian oil exports, as, given that most ship-owners carrying Iranian oil were not able to secure insurance, a number of Asian trading partners were forced to concede to government-sponsored security coverings.

When sanctions were imposed in 2012, the European Union prevented the International Group Corporation in London from providing any cover for Iran-bound cargo, which led to the de facto deployment of Iran’s tanker fleet, as foreign ships seeking to carry Iranian oil would henceforth be excluded from operating in the mainstream oil tanker market. This time, however, it remains unclear as to whether the EU will back US-led sanctions with such gusto.

Iranian companies have announced that they will continue to insure oil tankers, although this is somewhat difficult to do without connecting the Iranian banking system to international banks.

An Iranian supertanker called Happiness, which docked at a terminal operated by Iran’s national oil company on Kharg Island, for instance, currently has on board 2m barrels of oil. It was set to head for Asian markets at the beginning of September, although with Iran’s return to pariah status, its fate is now unclear. Iran’s own insurance companies are not recognized in international insurance circles. Additionally, these companies are facing their own domestic problems due to a lack of credit among financial and credit institutions in the country.

As one of Iran’s biggest export markets, firms and refineries in India in particularare very concerned about the insurance for tankers going between the two countries. Some refineries have already cut back on purchases of oil from Iran. Reuters reports that two major Indian refineries, Indian Petroleum and Bharat Petroleum, will reduce their purchases from Iran due to insurance concerns specifically. In response, Iran is planning to insure tankers transiting oil to India and to give special discount to Indian buyers.

Iran will not want to lose its share of the Indian energy market. According to Business India Online, The Indian government has allowed two Iranian insurance companies to pay a one-billion-dollar insurance coverage for Iranian oil tankers. This effort from New Delhi may have China, as the other largest consumer of Iranian oil, in mind. Custom from these major importers, however, are unlikely to mitigate the effects of US sanctions sufficiently by November if Iran is cut off from the global oil market.

EU buyers are also concerned about Tanker insurance. Coverage for the vast majority of ship leasing contracts is provided by IG Insurance Services Inc., if damage occurs, all actors in the tanker supply chain are aware that the group presides over billions of dollars in order to compensate. Even if both public and private insurance companies accept the risk of providing insurance for Iranian oil tankers, since no Iranian insurance company is a member of the International Syndicate of Oil Insurance, Iran’s insurance policy is essentially uncertifiable.

If Iran green lights such shipments regardless, it would be possible for Iranian tankers to be detained in international waters, leading to very severe legal consequences for Iran. The fact that both China and India have asked Iran to bear the cost of transporting and insuring their oil products shows that these Iranian oil customers want to put all liabilities on Iran as the seller.

To sum up, the hope of being able to by-pass tanker insurance with Iranian insurance is an overly optimistic move and may lead to an even greater conundrum of problems for Iran.

 

Read More

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

 

Read More

Driving Iranian oil export to zero in short term not easy: Energy expert

TEHRAN, Oct. 27 (MNA) –Touching upon the importance of oil market stability for the US, senior energy expert Omid Shokri says it is not easy to drive Iran’s oil export to zero in short term.

Following the brutal killing of Saudi Journalist at the Saudi consulate in Istanbul, There have been lots of tensions between Saudi rulers and their western allies particularly the US.

The US President Donald Trump has had different contradictory and weak stances towards the scandal. Despite threatening serious punishments against killers of the Saudi journalist at the same time Trump calls the Saudi regime as an important ally for confronting Iran.

The issue was discussed with Omid Shokri Kalehsar, a senior senior energy security and policy analyst in Washington.

Referring to the significance of oil market stability he said, “Stability in world oil market is in favor of US. Any increase in oil market directly affect energy security in the US. US planning to drop Iran oil export to zero but in short term it will not be easy to drop Iran oil export. At long term with sufficient oil supply by major oil exporter Iran’s role in world oil market may decrease, Iran needs to keep its share in regional and world oil market. Iran needs to play active energy diplomacy if interested to keep and increase its share in regional and world oil market. It can be seen that Iran’s oil export will decrease more than %50 in contrast to post nuclear agreement.”

Asked about the possible effect of the recent tensions between Riyadh and Washington over the brutal murder of Saudi journalist Jamal Khashoggi at Saudi consulate in Istanbul, Shokri said, “Current political tensions between Iran and Saudi Arabia, gives an opportunity to Saudi Arabia to export more oil to reduce Iran’s share in world market.

Current tension between US and Saudi Arabia, over Khashoggi hold a potential to affect world oil market but stability in oil market is US priority and also US trying to drop Iran oil export to zero. As mentioned before it will be hard to US to drop Iran oil export to zero. I think US and Saudi due to mutual interest are interested to manage any tension with aimed of decreasing Iran’s role in world oil market. Saudi has promised US to buy weapons from US and value of weapon agreements is above $100 billion. This agreement is very important for US economy and creation of job opportunities for US workers.”

Interview by Payman Yazdani

 

Mehrnews.com

Read More

Iran’s Regional Electricity Hub Plan

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Read More

Rethinking future Iran-Iraq energy relations

Iraq is perhaps Iran’s most important neighbour, sharing the country’s longest border and deep demographic, religious and ideological ties – not-to-mention vast reserves of natural resources, which may provide the basis of a convergence of geopolitical interests to the benefit of both.

Given the recent history of these two former warring nations, the two countries today enjoy surprisingly good political relations. With huge oil reserves, both Iran and Iraq are members of OPEC and have enjoyed a long presence on the world oil markets.

They share a number of fields, with the majority of Iraqi oil fields located inland and thus easy to extract, and the majority of Iranian oil and gas fields located offshore and therefore much tougher and costlier to exploit.

There is no doubt that the establishment of security and political stability are important in ensuring the success of efforts to expand the production capacity of both suppliers. Iran has frequently stated that is ready to develop oil and gas in cooperation with Iraq. Iranian energy firms are equally interested in Iraq’s energy infrastructure and fields.

Thus, the future holds much in the way of regional cooperation, with possible areas for this outlined below. Events and developments in other areas may, however, hold sway over their realisation.

 

Iran-Iraq Natural Gas pipeline 


In 2013, Iran signed an agreement to export gas to Iraq. Iranian gas is exported to Iraq to supply the country’s power plants. With seven million cubic metres of gas being pumped to Baghdad daily, Iraq has become the second-largest export destination for Iranian gas.

Iran has agreed to export 40-65mcm to Baghdad and Basra every day for the next six years, both countries having invested around $2.3 billion in the construction of a shared pipeline.

When the pipeline was launched in 2017, Iran began to export 14mcm to Iraq daily, a figure it looks forward to increasing. The project is a short-term one which involves exploration in gas-rich areas of Iraqi Kurdistan. Iraq is also interested in using Iranian capital and technology and experience in the LPG sector.

Iraq is planning to use LPG in cars and housing. Iran and Iraq have signed an agreement allowing Iranian companies to assist in the construction of Iraqi LPG facilities. This cooperation comes in various forms, including distribution, provision of vehicles, and the construction of hospital and residential complexes. The volume of gas exports to Iraq are set to increase to 35 million cubic metres per day with the launching of a sixth natural gas pipeline.


Oil swap


Iran is transporting Kirkuk Oil to the consumer market. In past years, Iran has used Turkey’s Ceyhan port to transit oil to markets. In December 2017, both countries signed a trade agreement promising to swap a daily amount of 60,000 barrels of Iraqi oil from Kirkuk.

This gives Iran the opportunity to have a greater sphere of influence in Iraq, with all the economic benefits this ensures, providing an opportunity for the central government in Iraq to exert greater control over Iraqi territory.


Electricity export


Iran exports electricity to its neighbours and is planning to become a regional electricity hub in the long term. Iran exports between 200 to 250 MW to Iraq, Afghanistan, and Pakistan. Iraq takes a large share of this, with around 120-130 MW electricity. Iraq is the biggest importer of electricity from Iran.

 

Last summer, Iran cut off electricity to Iraq due to a shortage in its domestic market. Some analysts have said that Iran aims to export to Iraq for political as well as economic reasons. In September 2018, Iraq was unable to pay its electricity bill to Iran, and has a debt of around $1.4 billion outstanding to Tehran.

After Iran cut the power, Baghdad signed an agreement with Saudi Arabia to make up the shortfall. Saudi Arabia reportedly offered to build a 3000-megawatt solar plant in Saudi Arabia and sell electricity to Iraq at a quarter of the price of Iranian supplies, though Iran plans to increase imports in general despite this loss of custom. Domestic supplies remain, however, a priority.

Joint Oil fields 


Iran shares a number of oil and gas fields with Iraq. Iran’s inability to attract foreign capital and technology to recover oil and gas production capacity in light of sanctions particularly affects its inability to benefit from the shared fields.

By 2017, Iraq was involved in the extraction of nine shared oil and gas fields at Azadeghan, Yadavaran, Azar, NaftShar, Behloram, Paydar Gharb and Arvand.

At present, Iraq produces twice as much as its neighbour from shared fields. Iraq has managed to increase its oil production from around 1.7 million barrels a day to 4.7 million barrels per day in the time between 2005 and 2017, making it easier for foreign companies to enter the market and add to investment.

In June 2018, Iraq ceded the exploration and development of several oilfields near Iran to the UAE’s al-Hilal company. At the same time, Iran launched measures aiming to increase production in the West Karun block, some of which is shared with Iraq. It should be noted that the amount of reserves in the Iranian section, which includes the Azadegan fields (north and south), Yaran (north and south), is estimated at 64 billion barrels.

Russian companies currently have had an active presence on the Iraqi side of these fields, yet the long delay in Chinese companies launching work on the Yadavaran and North Azaghan Fields has caused Iran to miss out on effectively exploiting these reserves.


US withdrawal from the JCPOA


The US withdrawal from the JCPOA Iranian nuclear deal and its re-implementation of fresh sanctions against Iran’s energy sector provides a good opportunity for Iraq to increase its oil and gas production from shared fields and take the lead over Iran’s share of the consumer market.

It can be expected that after new sanctions are introduced, foreign oil firms will be unable to invest in the Iran energy sector at all.

Iraq is also increasing its share of the Turkish oil market and is likely to overtake Iran in this regard. Furthermore, if Iran is no longer able to enjoy electricity deals with Iraq, Saudi Arabia will take its share in Iraq’s electricity market.

Given the political tensions between Iran and Saudi Arabia, Riyadh is no doubt ready to take effective steps to exploit the resulting shortfall. Iran needs to revise its regional policy and resolve its current tension with its neighbours if it is interested in using energy exports as an instrument of foreign policy.

The US withdrawal will not only delay Iran’s plans to increase production in the common oil fields, but will provide Iran’s neighbours with an opportunity to encroach on what little progress Iran has made, and take a larger share of the regional and global oil markets.

Shared resource pools can act as a good basis for regional diplomacy to improve and expand ties with neighbouring countries. However, the continuation of sanctions will mean increasing the withdrawal of neighbouring countries from common areas and reducing Iran’s presence on the global market.

 

https://www.alaraby.co.uk/english/comment/2018/10/19/rethinking-future-iran-iraq-energy-relations

 

 

Read More

Challenges Facing Natural Gas Export After the Sanctions

The share of Natural gas and LNG (Liquified Natural Gas) of the world energy market is increasing daily. In 2014, LNG’s share of the world gas market was 42% and according to International Energy Agency, this number will increase to 53% by the year 2040.

 

Among the LNG producing countries, Qatar has the highest share of exports. In 2016, of all the 264 million tons of LNG produced in the world, Qatar’s share was 77 million ton. Currently, countries such as Australia, Russia, United States, Mozambique… are investing heavily in this industry in order to increase their share of the market. As a result of the natural gas revolution in Chile and the new technologies and methods, the United States is quickly becoming one of the main LNG producers in the world, so much so that in near future, it will play an important part in the energy security of the European Union and East Asian countries. Since LNG export is more efficient than natural gas export, especially in long distance, we are now witnessing a new competition among the LNG producers over more shares in the market.

 

Despite having 18% of the world’s gas resources, Iran is unable to produce LNG. Iran has less than 1% of the world gas market and with the current patterns, its chances for increasing this share is slim. Before the US and EU sanctions over the nuclear program, Iran had made plans for LNG production. Three important projects of LNG, Persian, and Pars were left unfinished due to sanctions and foreign companies involved such as Shell, Repsol, Total, and Malaysia’s Petronas were forced to leave the county. “Iran LNG” project which is in 52% development, was designed for producing 10 million tons of LNG a year. After JCPOA, the regime wanted to finish this project with foreign investment and technology. The project required 4 billion dollars, but even before the United States’ decision to exit the deal, the negotiations with foreign companies were unsuccessful, and after US exit, it seems impossible to finish in such short time.

 

There were several plans designed for Iran to join the LNG exporter countries:

One of these plans was the Iran-Oman pipeline which was supposed to export 10 million square meters of natural gas a day. Iran wished to turn some of this gas into LNG in Oman facilities and then send it to market, but this deal has not come to fruition. The capacity of Oman’s facilities is about 1.5 to 2 million tons.

 

The other option was building small LNG units. After JCPOA, Iran had numerous negotiations with Russian, Chinese, and Korean companies for building small LNG units. The production capacity of these small units is 300 tons a day, and they are usually used for delivering gas to distant areas that might be difficult to reach. Iran was planning to build several of these LNG units over two years, but the sanctions and lack of interest from foreign companies prevented it.

 

Iran’s next option was using offshore LNG producing ships. Floating LNG (FLNG) is a type of ship with LNG production technology that mines a gas field under the sea and turns it into LNG. In the fall of 2017, there were negotiations between Iran and a Norwegian company to buy floaters, but that also failed.

 

Saturation of the LNG market and the competition among the producing countries will make it more difficult for the new producers of LNG to enter the market. Iran’s vast resources of natural gas is a good opportunity for the country to play a role in the regional and international market by producing LNG. Exporting LNG to distant countries through pipelines is not efficient. The safest alternative is for Iran to consider east Asia, India, and the European Union for LNG export in the long run. But without any changes to its regional policies, the Islamic Republic will have a hard time attracting foreign investments. The main obstacle to drawing investments in the energy industry, especially in natural gas and LNG, is the lack of a legal structure for effective and quick decision making and the country’s political instability. These are not difficult to overcome if there is a political will to use natural gas in order to improve the economic and political conditions of the country.

 

Read More

Turkey to Continue Iran Gas Exports Despite US Sanctions

TEHRAN, Sep. 16 (MNA) – Omid Shokri Kalehsar, a senior energy security analyst, told Mehr News that Turkey will continue to import natural gas from Iran despite US’ sanctions targeting Iran’s oil sector.

Omid Shokri Kalehsar, a senior energy security analyst and PhD candidate in international relations, said in an exclusive interview with Mehr News Agency that Turkey is keen on buying natural gas from Iran with “reasonable price” in contrast to the price it pays for the gas imported from Russia and Azerbaijan.

He stressed that if Iran and Turkey can agree on a price and Iran is able to produce more natural gas, Turkey will be interested to consider buying gas from Iran instead of the other two rivals.

He went on to add, however, that while Turkey’s private companies have enough financial resources to attract Iran’s market, a legal framework, an efficient decision-making process, and political stability are also needed to make attracting foreign investment possible.

The following is the text of his interview with Mehr News:

Back in 2015, Iran had voiced willingness to pipe its natural gas to Europe through Turkey. Did that plan ever come to anything? And is the project still feasible after the US withdrawal from the Iran nuclear deal and the reinstatement of economic sanctions on Tehran?

Iranian officials many times showed their interest to export natural gas to EU and play a role in EU energy security. Iran holds world’s second natural gas reserve but at present has no major natural gas export. It should be noted that Iran has high domestic natural gas consumption and suffers lack of foreign investment and technology and capital capacities due to sanctions. Iran just exports annually 10 bcm to Turkey. Major natural gas export needs more foreign investment, financial resources and decrease in domestic consumption.

In coming years there is no more demand in EU natural gas  market. At present EU members states’ LNG imports from US and Russia plays a key role in EU natural gas market and is planning to export more natural gas to EU via new pipeline projects such as Turk Stream and Nord Stream 2. EU members also made more investment in renewable energy and energy efficiency.

Iran needs about 4-6$ billion to construct required infrastructure to deliver natural gas to Turkey borders. And at present Iran has no more capital capacities. And current natural gas price is not economical for Iran to export natural gas to EU via pipeline.

Ankara has pledged to boost imports of Iranian gas despite US sanctions. Is that request still on the table?

US sanctions targeted Iran oil sector and Turkey will continue natural gas import from Iran. Turkey has some domestic pipelines project and at present natural gas system is not integrated, Turkey needs Iran natural gas to use it in Southern part of Turkey which has cold winters. Ankara is interested in importing more natural gas from Iran. Turkey begins to import natural gas from Azerbaijan via TANAP project and by next year Turkey will import natural gas from Russia through Turk Stream project. By 2026 and at the end of Iran-Turkey natural gas agreement, Turkey is interested in importing more natural gas from Iran and extend the natural gas agreement with Iran. Turkey’s officials have repeatedly stated that they want to buy natural gas from Iran with reasonable price in contrast to the gas price which Turkey imports from Russia and Azerbaijan. If Iran and Turkey agree on price and Iran is able to produce more natural gas, Turkey will import more natural gas from Iran. It should be noted that more natural gas production needs more investment in oil and gas fields and requires infrastructure and giving priority to energy efficiency in Iran. Turkey told US officials that it will continue importing oil and gas from Iran but during last month Turkey decreased oil import from Iran.

Turkey has stressed that it does not approve of US sanctions against Iran, calling them ‘unilateral’. Meanwhile, Turkish energy company Unit International has a strong presence in Iran, with a $4.2 billion worth of contract with Iran’s energy ministry to build seven natural gas power plants here. How much progress has the company achieved with the project so far? Has Unit International decided to remain in Iran or abandon its investment projects under US pressure?

Post-JCPOA Iran expected to have more foreign investment in its energy sector.  Unit International was one of the foreign firms which signed an agreement with Iran to build seven natural gas power plants. According the agreement, Iran will provide the natural gas which Unit International need for these power plants. Iran has also pledged to guarantee purchase generated electricity from these power plants at a predetermined agreed price over a period of 6 years.

By September 2018, there was no major development in this agreement. There were challenges and debates between government and parliament over this agreement.  Asadollah Gharakhani, spokesman of Iranian Parliament Commission on Energy announced that in attraction of foreign investors for energy sector, government policy should include transferring of knowledge and technology, and also human resource training. He refers to the fact that Unit International has no history of construction of power plants and this company was not considered a power plant manufacturer, he claims that Unit International in Turkey occasionally organizes hotels and business activities.

US withdrawal from JCPOA is a major problem for any foreign company interested in investing in Iran energy sector. It is expected that Unit International needs Turkish government’s strong support to keep investing in Iran and to continue construction of natural gas power plants. I think it will not be easy for Unit International to maintain in Iran. The other problem in both Iran government and parliament is the support to this company and other foreign firms to be more active in Iran energy sector. Turkey’s private companies have good experience and enough financial resources to attract the Iran market. The problem is that to attract foreign investment you need a legal framework, an efficient and fast decision process and political stability (especially in the international context). At the moment these variables are far from being achieved.

Omid Shokri Kalehsar is a senior energy security analyst and PhD candidate in International Relations. His primary research interest is in the area of energy diplomacy, geopolitics of energy, Iran–Russia relations and Iran-Turkey relations.

Interview by: Payman Yazdani, Marjohn Sheikhi

Read More