The Reason Why Iran Won’t Become an Energy Superpower

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

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

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

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

Gas Dispute

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

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

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

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

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

Gas Swap

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

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

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

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

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

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

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

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

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Turkey’s Renewable Energy Potential

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

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

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

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

Employment opportunities in Renewable

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

Investment incentives

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

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

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

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

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

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

 

https://uwidata.com

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