Iran-Gulf Energy Relations in the Time of Trump Sanctions

Analysis: Iran could easily export cheap gas to GCC nations, but only if it improves political relations with arch-enemy Saudi Arabia,

Over the past two years, Iran has bolstered its relations with several Arab countries as the Gulf crisis has deepened.

While the Gulf Cooperation Council [GCC] has in the past tried to present a unified, timely and relevant response to regional developments, these attempts are sometimes individualised by the actions of a member nation.

Iran’s relationship with every member of the GCC is different. Oman, the closest country to Iran among GCC members, maintains its warm political relationship with Tehran in a relatively predictable direction.

Iran-Oman relations faced few challenges either before or after the 1979 revolution. Oman’s policy of establishing close and positive relations with Iran, and a constant emphasis on the development of relations in all political, economic and cultural fields, has led Tehran and Muscat to recognise each other as strategic partners in the Middle East.

Oman also played a mediation role in Iran’s nuclear talks with the P5+1 countries and hosted several rounds of dialogue between Iranian and US foreign ministers.

Tensions between Iran and Saudi Arabia, meanwhile, have built steadily during the Hassan Rouhani era. They have mutually exclusive interests in Syria, Iraq and Yemen. The attack on Saudi diplomatic sites in Tehran and Mashhad also enflamed tensions more than ever.

In Iraq, since the fall of Saddam, Iran’s influence has grown significantly. Along with Iran’s allies in Lebanon, Syria and Yemen, Tehran’s regional expansionism has grown and alarmed Riyadh, which is fearful that growing Iranian influence comes at the expense of its own regional power.

Saudi Arabia has used the current tranche of US sanctions against Iran to produce more oil and take Tehran’s share of the world market. Riyadh is also trying to use its investments in major buyers of Iranian oil, such as India, to persuade them to reduce Iran’s role in their energy markets.

The GCC has always viewed the Islamic Republic of Iran as a fundamental threat to its existence, and from the outset, has taken a hostile attitude towards Iran.

Meanwhile, facing the collapse of the nuclear deal and the new sanctions, Iranian officials have declared they are “ready and interested” to develop bilateral relations with Iran’s neighbours, mainly the GCC.

 

Leveraging energy resources 

Iran’s geopolitical importance is in no small way connected to the existence of huge energy reserves, drawing the attention of global powers to the region. This, along with the strategies of other regional and global powers, largely shapes the foreign policy of the Islamic Republic.

Iran’s main objective is to promote its regional status – and the biggest obstacle to achieving this is the strong US military presence in the region.

Regionalism as a main factor in Iranian foreign policy gives an opportunity for Iran to expand relations with the GCC. Iran, with huge oil and gas reserves, can be an energy supplier (mainly of natural gas) to some GCC members such as Oman, the UAE and Kuwait.

Given the fact that the Gulf countries are Iran’s top priority for gas exports, after negotiations with Oman, there is now the possibility of adding Kuwait to Iran’s list of gas customers.

Ali Reza Kamali, the former CEO of Iran’s Gas Export Company, said the current survey of Iran’s first gas exports showed it would only require the construction of a 200 kilometre pipeline to reach the markets of Oman, Kuwait, the UAE, Saudi Arabia, Bahrain and Iraq.

While in recent years these countries have been believed to have little need for oil imports, they have little in the way of gas – except for from Iran.

If Iran does increase its gas production capacity, there is a possibility of export to the Gulf. Although initial talks for Iranian gas exports to Kuwait have not yet been finalised, the operation of the Iranian gas pipeline to Iraq could provide the foundations for the necessary physical infrastructure to provide gas onwards to Kuwait.

This means the technology and personnel to export gas through Iraq to Kuwait is largely already in place, and this programme could become operational not long after a contract is signed.

Although countries such as Iraq, Saudi Arabia, Kuwait and the UAE do have gas resources, these consist mainly of gas with oil, and they do not have independent gas reserves. These countries are also focused on oil production.

Hamidreza Aragi, the director of Iran’s National Gas Company said that if gas contracts between Iran and neighbouring countries were signed, the security of the countries of the region would be tightly linked.

In terms of economics, politics, population, history of the formation and influence of Saudi Arabia in the Arab world, Saudi Arabia has long sought to expand its influence within the GCC as its most important member.

To enter a new era in Iran’s relations with the Council, both sides would need to be able to shift their concerns towards tangible diplomatic achievements. Iran has also to be more active in foreign diplomacy in order to eliminate problems with its neighbours.

 

To enter a new era in Iran’s relations with the Council, both sides would need ti  be able to shift their concerns towards tangible diplomatic achievements

 

Iran still has huge potential in the petrochemical sector, and exporting more petrochemicals may provide an alternative to exporting LNG while oversupply lowers the value of the LNG market.

Recent political tensions in the region have affected natural gas agreements with Iran’s neighbours, with energy experts believing political tensions between Iran and Saudi Arabia have an overall negative effect on Iran’s ability to conduct business over natural gas agreements with other Arab nations.

Iran enjoys good political and economic relations with Oman; however, foreign factors have delayed the project of Iranian-Omani natural gas pipeline at the planning phase.

Iran should try to reduce tensions with Saudi Arabia to a manageable level, as the relations between Iran and the Gulf Cooperation Council depend on Iran’s relations with Riyadh.

History has shown that ties between the Gulf Cooperation Council and Iran have improved as relations between Iran and Saudi Arabia improve.

/www.alaraby.co.uk

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

 

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

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

 

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

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

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

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

 

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

 

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


Iran

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

 

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

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

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

 

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

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

 

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

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

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

 

Saudi Arabia



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

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

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

 

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


Iraq

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

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

 

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

 

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

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

 

www.alaraby.co.uk/

 

 

 

 

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The Consequences Of U.S. Sanctions For Iran’s Oil Industry

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

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

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

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

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

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

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

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

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

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

 

https://lobelog.com

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

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

Delivering on its Promises

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

 

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

 

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

Iran’s Oil Targets

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

 

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

Determining the bottom line

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

 

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

 

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

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

Foreign Investment

 

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

 

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

 

 

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

 

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

 

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

 

 

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

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

 

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

Iranian-Omani Natural Gas Pipeline

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

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

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

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

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

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

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

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

Effect of Sanctions

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

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

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

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

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

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

What Does the Future Hold?

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

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

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

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

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

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Iranian-Indian Energy Relations Under Sanctions

Since it has huge oil and gas reserves and is geographically quite close, Iran is ideally placed to provide energy to India, and thus the country is Iran’s second largest oil market after China. Even at the height of the U.S. sanctions on Iran’s energy sector, India continued to import oil from the country. The relationship between Iran and India has expanded rapidly in recent years. After the 2015 nuclear deal, with the lifting of sanctions in various fields, especially energy, economic and commercial links between Iran and India expanded dramatically.

With new sanctions on the horizon, Iran provided significant discounts to Indian importers last summer. Thus, the volume of August imports was 56 percent higher than the previous August. So far, India is one of the countries exempted from secondary sanctions that the Trump administration is imposing on states doing business with Iran. But oil prices are expected to rise nevertheless, which will adversely affect India as the third largest oil importer in the world.

Although sanctions on banking prevented New Delhi from transferring money from the sale of oil to Iran in time, links were preserved thanks to strategies established during the previous round of sanctions. At that time, 55 percent of the proceeds from the sale of Iranian oil to India were deposited in euros and 45 percent in rupee in UCO Bank, an Indian financial institution, after which most of the money was transferred to Iran. This time around, UCO Bank is reluctant to serve as the conduit for funds, and India has opted to pay Iran in rupees through the Mumbai branch of an Iranian bank.

India has launched a major effort to invest in petrochemicals, chemical fertilizer, and the other upstream industries of its own oil industry. The country’s Oil and Gas Minister Dharmendra Pradhan has announced plans to invest $20 billion in Iranian oil and gas infrastructure. Iran, aiming to gain a competitive edge over other suppliers, has delivered oil at reduced prices to India, offered a longer period of credit to pay for oil purchases, and is transporting the oil almost for free. In addition, many Indian refineries are equipped to match Iranian refineries, so they cannot easily rely on other suppliers. Iran has also offered to cover the insurance for tankers that carry Iranian oil to India in lieu of an exemption from international financial institutions.

The port of Chabahar is the best, the closest, and the least costly route for Iran to reach global markets and promote the development of neighboring countries. India has committed to invest $500 million to develop Chabahar port. Iran and Afghanistan, meanwhile, want to establish an international freight corridor through this port, and several Indian wheat shipments have already gone to Afghanistan through Chabahar. New sanctions against Iran, however, threaten the success of the Chabahar project by not only preventing countries and companies from trading with Iran but also by threatening sanctions on financial institutions that engage with Iran. These sanctions will reduce the flow of capital and business to the port.

On November 7, the United States announced that it would waive sanctions on certain parts of the Chabahar port, along with the Chabahar-Afghanistan railway project and Iranian petroleum exports to Afghanistan. Since Islamabad is not allowing India to use Pakistani territory for direct business with Afghanistan, Chabahar is important for Indian access not only to Iran but to Afghanistan and beyond. The diversification of energy resources is a key pillar of Indian energy policy. If sanctions continue to punish the Iranian energy sector after the U.S. waivers expire, India will reduce oil imports from Iran and increase imports from Iraq and Saudi Arabia.

Indian oil imports from Iran were expected to grow by 31 percent year-on-year, reaching 500,000 barrels per day in the fiscal year beginning April 1, 2018. Iran understands India’s problems in dealing with an unpredictable energy market and will do everything it can to ensure the security of India’s energy supply. India’s relations with Iran are also complicated by the impasse over Indian investment into developing Iran’s Farzad B gas field.

China has been one of the strongest drivers of closer relations between Iran and India. An economic corridor between China and Pakistan and the former’s investments into the port of Gwadar is a common geopolitical challenge for both India and Iran. The economic corridor is designed to limit Indian operations in the western regions of the Indian Ocean and the Oman Sea. An expanded Gwadar port, meanwhile, undermines the potential of the Chabahar port and allows Pakistan to challenge its regional rival, India, in the area of Afghanistan.

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Iran to Export 1mn bdp of Oil Despite US Sanctions

Qatar will withdraw from the Organization of the Petroleum Exporting Countries (OPEC), the Persian Gulf nation’s Energy Minister Saad Sherida al-Kaabi announced.

The decision to quit the bloc of 15 oil-producing countries that account for a significant percentage of the world’s oil production was confirmed by Qatar Petroleum, the state oil company, last Monday.

Following is an interview with Omid Shokri Kalehsar is a Istanbul based Senior Energy Security and Policy Analyst on the issue:

What are the reasons behind Qatar’s decision to withdraw from OPEC? Is it politically and economically right decision?

It seems that Qatar is interested to be more active in LNG market and keeps its place as world’s first LNG producer and exporter. But it is possible for Qatar to export more oil if Qatar withdraw from OPEC. It should be noted that there is a major challenge between Qatar and Saudi Arabia as OPEC major producers and actor. It is possible for Iran’s private sector to buy Iran crude oil from Energy Exchange and sell it to Qatar energy firms and Qatar firms after Qatar withdrawal from OPEC sell it oil to regional and world market.
Is there any relation between Qatar’s decision and the Saudi policy in the organization?

Some analysts believe that Qatar decision to withdraw from OPEC is reaction to Saudi Policy in OPEC. Qatar is against Saudi Policy in the OPEC, Saudi Arabia after Khashoggi was under pressure.  It should be noted that Qatar-Saudi relations faced major challenge after a Saudi-led coalition imposed blockade Qatar.
Any relation between Trump’s anti-OPEC policies and Doha decision?

 Stability in world oil and low price in oil market is in favor of oil consumers and US. US is against any

country or organization which decided to increase oil production or increase oil price. Trump administration can be expected to continue its policy toward OPEC and will ask OPEC member states to produce more oil to keep oil price down.

How do you see the future of the 60 years old organization?

Major OPEC oil producers must solve problems if they want OPEC to be one of the key factor in world oil market. Every country which has more production has a power in OPEC.
Cooperation and coordination between major oil producers and non-major oil producers is required. If OPEC members need to continue their role in world oil market, they require cooperation between themselves. Without cooperation and mutual understanding between all OPEC members, there is no clear future for OPEC and this organization may face serious challenges in the future.

At the present moment which Iran is under US and its regional allies’ pressure such as Saudi Arabia and UAE to cut Iran’s oil export to zero, will Doha withdrawal from OPEC affect the US goals toward Iran?

As I mentioned before in my interviews and papers it is not easy to drop Iran oil export to zero. Iran during sanction era will be able to export average 1000000 bpd and 300000 bpd condensate bpd.  Iran oil export’s drop is in favor of rest major oil exporters and all major exporters are satisfied with new sanctions imposed against Iran oil exports.

How will be possible reaction of Russia and China to Qatar’s withdraw? Will this decision affect China’s One road-One belt project? 

Russia has a plan to be a key player in LNG market. Russia is careful about all major oil and gas producers, Russia wants them to lose their share in world energy market and plans to increase its own share. China as energy costumer has its own strategy toward energy producer countries in the Middle East such as Qatar. China in promotion of its “Going out Strategy” encourages energy companies to invest in Qatar’s energy sector mainly in natural gas fields. Chinese officials have repeatedly stated that China’s common goal from One road One Belt project is to create dialogue, help to bring peace and stability in the Middle East, link East and West Asia and joint development, eliminate obstacles and biases. Arab Countries and Qatar has special position in this project. According to Wang Yi, Foreign Minister of China, Arab countries cooperation in One Road One Belt will bring Peace in the Middle East. China is interested to keep stability in the region to import oil and gas freely from the region. energy security is key factor in China foreign policy. Last September PetroChina inked its biggest Qatar LNG deal as U.S. Trade at Risk and it seems that China will increase its investment in Qatar energy sector to promote Qatari cooperation in One Road One Belt project.

Omid Shokri Kalehsar is a Senior Energy Security and Policy Analyst, Istanbul.

https://en.mehrnews.com

Interview by payman Yazdani

News Code 140293
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The Effects Of U.S. Sanctions On Iran’s Natural Gas Projects

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

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

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

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

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

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

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

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

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

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The Future of Iran-Pakistan Energy Relations Seems Dim

With the re-imposition of sanctions on Iran, it is not just the Islamic Republic’s global, but regional energy links which have been shaken, spelling bad tidings for future economic and political cooperation. Alternatives to Iran’s drastically under invested energy sector abound for those countries which, like Pakistan, are undertaking serious efforts to make up for their own deficits. What can the current state of relations between Pakistan and Iran tell us about the future of regional energy relations?

 

With a population of almost 200 million, Pakistan ranks as the twenty-sixth largest economy in the world. This demographic advantage brings with it greater urgency in matters regarding energy. According to the U.S. Energy Information Administration, 62% of Pakistan’s population is dependent on biofuels, such as wood, for cooking and heating. Given this high rate of dependency, the extent to which whole swaths of the country are lacking in electricity and gas becomes clear.

 

Recognizing the needs of the population, the Pakistani government has proposed a plan to increase domestic energy production and hydrocarbon exploration, increase natural gas imports, diversify the combined capacity of installed electricity production, improve domestic standards for energy efficiency, and gradually eliminate natural gas subsidies.

 

Iran shares land and maritime borders with several countries, such as Turkmenistan and Qatar, which are rich in gas resources. Others in close proximity, such as Afghanistan, Pakistan, and Armenia, as well as the UAE, Kuwait, and Oman, are still in need of natural gas suppliers. In addition, Iran is home to a wide network of pipelines which (with the exception of 90 to 100 days during the winter when domestic demand peaks) has the capacity to transport gas to countries in need of additional sources of gas for much of the year.

 

Thus, in many ways, Iran is ideally positioned to benefit from both transportation and swap deals, provided there is active cooperation through diplomacy and allowing the energy industry representation in regional initiatives. The realization of this potential, however, is evidently being held back by the unfavorable international conditions to which Iran has fallen victim, not to mention its own weak attempts at energy diplomacy initiatives and active participation in energy transmission projects.

 

In 1990, Pakistan began negotiations with Iran for gas exports. At the same time, India’s growing energy demands led to joint support for what was termed the Peace Pipeline, which signaled a new chapter in India and Pakistan’s relations under which the two rivals would come together to enjoy the mutual benefits of Iranian resources. In 2011, however, due to U.S. pressure, India withdrew its support for the Peace Pipeline, an unfortunate development for Iran which had hoped the pipeline would serve to develop and expand its friendship and cooperation in the region.

 

According to the initial agreement, Iran would have transported natural gas via a 2700-kilometer pipeline through Pakistan to India. It was anticipated that in the event of a final agreement, 1100 kilometers of the pipeline would be constructed in Iran, 1000 kilometers in Pakistan, and 600 kilometers in India. The plans projected that 150 million cubic meters of gas would be exported daily to the subcontinent: 90 million cubic meters for India, and 60 million cubic meters for Pakistan.

 

Iran completed its own extension of the pipeline to deliver natural gas from South Pars to the Iran-Pakistan border by December 2014, long before the deadline. However, Islamabad has still not taken steps to comply with its own obligations, and no practical steps towards the construction of the project in Pakistan’s territory have been undertaken.

 

Diversification of energy resources represents a major pillar of Pakistan’s national energy policy. At present, Pakistan is planning to import natural gas and liquefied natural gas (LNG) from new sources, as well as importing electricity from Turkmenistan. Renewable energy will also play an important role in Pakistan’s energy basket in the coming years.

 

Running Rings Around Iran: The TAPI Project

 

One of Pakistan’s alternatives in diversifying its energy resources comes in the form of the TAPI project, which was designed to deliver Turkmen natural gas to India via Afghanistan and Pakistan. The project was first conceived with U.S. support in 1990 as a means of boosting regional links while circumventing Iran.The cost of the project is estimated to range from $7 billion – $9 billion. TAPI is projected to transfer 90 million cubic meters of gas per day along the route of Turkmenistan–Afghanistan–Pakistan–India.

The Asian Development Bank is the project’s primary sponsor, along with the World Bank, the United States, and India. In political terms, the United States and its allies, including NATO, are the most important political supporters of this pipeline.Washington’s approach to the pipeline is based on its long-term strategic goals in the region.

 

Through this economic project, the geopolitics of the region may be bolstered in the US’s favor and pave the way for the establishment of permanent bases in Afghanistan, and thus a higher presence along the borders of Iran. By removing Iran from the thriving and growing energy market of the region, the United States will cause irreparable damage to the Iranian economy and political influence in the region.

 

LNG and The Post-Pipeline Future

 

Natural gas and LNG now form 50% of Pakistan’s total energy basket, and this will increase in the coming years due to Pakistan’s new agreements with LNG suppliers. At present, Pakistan imports LNG from Qatar since a $21 billion deal was signed in February 2015 to buy liquefied natural gas from Doha. Under the agreement, Pakistan will receive 500 million cubic feet of LNG per day. The Pakistani energy crisis will likely be alleviated by imports of Qatari gas, but those imports will not resolve the problem completely.

 

Meanwhile, the shale gas revolution that the U.S. experienced in the early 2000s has provided an opportunity for the country to transition from energy importer to energy exporter – cementing its role with increasing success since 2017. 3.166 million cubic feet of these U.S. exports are planned for Pakistan. U.S. natural gas is key to diversifying the nation’s energy supplies while expanding trade relations.

 

The U.S.’s reliance on the shale gas revolution and increasing LNG exports to expand and develop relations with neighbors and allies provide Pakistan with an enthusiastic alternative supplier also looking to divert Iranian gas interests. The shale gas revolution and LNG exports provide a new tool for the U.S. to wean allied nations off of Iranian oil and gas. In 2018, Pakistan has imported 13 billion cubic feet (Bcf) of LNG from the U.S. — a huge increase compared to the previous year’s figure of 3.2 Bcf.Seeking new, more robust opportunities afforded by sea channels, Russian energy giant Gazprom is 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, with the first shipment arriving on July 2015. Currently, as noted above, Pakistan is increasing its LNG imports from Qatar, and hopes to do the same with Gazprom’s gas authorities; work is on-going to find ways of boosting Russian LNG exports to Pakistan.

 

In 2016, Pakistan and Azerbaijan agreed to sign deals in various fields including those that would allow Azerbaijan to supply the country with electricity, crude oil and refined petroleum products, liquefied petroleum gas (LPG), and LNG. Pakistan is increasing its LNG intake amid increasing demand for gas and decline in production. In 2017, the State Oil Company of Azerbaijan Republic (SOCAR) won a tender to supply Pakistan with two LNG cargoes to be delivered in October according to Pakistan LNG. SOCAR began delivering LNG to Pakistan in October. The LNG was delivered in two cargoes, each carrying 140,000 cubic meters.

 

Natural Gas Price, Electricity Generation

 

The cost of Iranian natural gas is of major concern to Pakistan, as the latter needs Iranian natural gas to generate electricity. At present, Pakistan’s demand outstrips its supply by between 4000-7000 megawatts. However, the cost of Iran’s gas as proposed by the IP project is too expensive for use in power plants. The electricity generated from Pakistan’s power plants, mainly located in the Baluchistan province, costs $3.5 per one million units, while the cost for Iran’s gas is $12.

 

Thanks to the China-Pakistan economic corridor, Islamabad will soon be able to generate electricity from coal-fired power plants. The 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 its electricity shortage in part through other projects such as the Casa 1000 project. The Casa 1000 is one of the most important infrastructures in the regional energy market, with a capacity of 1300 megawatts from Kyrgyzstan and Tajikistan providing a very good platform for the purchase and sale of energy in the region. By transferring electricity from Central Asia to South Asia via Afghanistan, the economic benefits of Central Asia and South Asia will be met in a mutually advantageous regional arrangement.

 

Last September, Turkmenistan completed an upgrade of its largest electric power plant, which it is hoped will help boost exports and eventually allow supplies to Pakistan. In 2018, Calik Holding signed a memorandum of understating with Turkmenistan and Pakistan to invest $1.6 billion over the Turkmenistan-Afghanistan-Pakistan transmission line. Afghanistan and Pakistan will receive 1000 megawatts of electricity annually from the project, thereby leaving Iranian energy firms in the dark.

 

What is on the Horizon?

 

Iran needs to redefine the role energy exports play in its foreign policy, especially in relation to its neighbors. Iran holds the potential to use active regional energy diplomacy to maintain a share in neighboring markets, provided it succeeds in reducing tensions and thus paving the way for advanced economic benefits.

 

Pakistan is investing in renewable and planning to increase this portion of its energy basket with the construction of a hybrid solar-wind energy system to bring energy to rural areas.

U.S. sanctions against Iran are clearly another factor that will drive Pakistan toward other energy partners. Iran may well lose Pakistan as an electricity importer, especially with the progress being made in electricity deals with Turkmenistan. If Iran intends to be present in the Pakistani energy market, it first ought to offer reasonable prices which can compete with Al-Anjali as well as Turkmen gas, as worked in the case of retaining Indian business.

 

If Iran can break the deadlock with the U.S., it may finally benefit from the financial capabilities and technology needed to produce more oil and gas to export to its neighbors. If the oil and gas pipeline projects which connect Iran to its neighbors function at their highest capacities, then the links forged through the deals which result could be a key to bringing peace and stability in the region — with the added bonus of making it much harder to impose effective sanctions on Iran after such links have been cemented.

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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.

 

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