Iran and Saudi Arabia Compete for India’s Energy Market

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

 

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

 

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

 

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

 

Saudi Investment in India’s Energy Sector

 

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

 

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

 

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

 

Saudi Investment in TAPI Project

 

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

 

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

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

 

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

 

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

 

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

 

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

 

Iran and Saudi Arabia Compete for India’s Energy Market

 

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

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

 

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

Iranian-Omani Natural Gas Pipeline

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

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

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

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

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

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

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

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

Effect of Sanctions

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

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

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

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

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

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

What Does the Future Hold?

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

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

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

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

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

www,insidearabia.com

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The Reason Why Iran Won’t Become an Energy Superpower

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

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

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

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

Gas Dispute

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

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

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

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

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

Gas Swap

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

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

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

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

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

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

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

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

www.nationalinterest.org

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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

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

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Beyond The Deal: Turkish-Iranian Energy Relations In The Post-Sanctions Era

Because of the EU/U.S. sanctions regime against Iran’s energy sector, the country’s oil and gas production capacities have been decimated. Following the signing of the 2015 Iran nuclear deal—the Joint Comprehensive Plan of Action (JCPOA)—Iran hoped the country would attract more foreign investment and reverse the damage caused to its oil and gas industry.

 

Meanwhile, with growing domestic energy demands, neighboring Turkey is in dire need of energy supplies from reliable sources and wants to diversify its its energy resources. Thus, both countries are in the ideal situation to develop a mutually beneficial energy relationship. Yet, as many challenges as opportunities lie ahead.

 

Iran and Turkey signed their first energy agreement in 1978, just before the Iranian Revolution, with Iran agreeing to supply the country with one million tons of oil. By the Ahmadinejad era (before EU and U.S. sanctions were launched against Iran’s nuclear program), Iran had become Turkey’s largest oil supplier with the latter relying on Iran for 43.13% of its oil. With the onset of sanctions, Iraq replaced Iran as Turkey’s number one supplier. By 2015, with a deal to end sanctions, Turkey began importing around 20% of its oil and 18% of natural gas from Iran.

 

Since the U.S. withdrawal from the JCPOA, however, Turkey has once again decreased the amount of oil it imports from Iran. Turkey imported about 174 000 barrels per day from Iran between January and June 2018—down 27% from the year before—with Russian and Iraqi suppliers gaining lost ground.

 

Turkey signed an agreement to purchase 10 billion cubic meters annually of Iranian natural gas in 1996. Iranian natural gas exports to Turkey made up around 90% of the country’s total natural gas exports. Due to high domestic consumption in Iran, especially in winter, gas exports were curtailed to the frustration of those in the south of Turkey who were directly affected by the resulting supply deficit. According to the conditions of the agreement, if Iran were unable to export the agreed amount to Turkey, then the case would be referred to the International Court of Arbitration (ICA) with Iran incurring a heavy fine. At present, Turkey has no integrated natural gas infrastructure and needs Iranian natural gas to supply its southern regions in the winter.

 

Between 2009 and 2012, Turkey often complained about the quality and price of Iranian natural gas, and took its complaint to the ICA, which ordered Iran to pay Turkey part of its $1.9 billion debt with free natural gas supplies. The current agreement is set to end by 2026, and both countries must sign a new agreement to extend their relationship. Iran asked Turkey to double the amount of natural gas it imports from Iran in return for a discount in price. However, as of October 2018, no major progress has been made in negotiation, and if Iran and Turkey cannot sign a new agreement Iran will likely lose a major market. At present, Turkey is party to several transit projects. Once these go online, it will be doubly difficult for Iran to rely on its custom.

 

Furthermore, Turkey has begun to import natural gas from Azerbaijan and has also signed an agreement to receive 31.5 billion cubic meters annually from Russia. The United States, developing its shale gas, also supplies Turkey with liquid natural gas. At present, Turkey is the second major U.S. LNG importer in Europe and might come to rely more on the United States if an energy agreement with Iran cannot be extended. Turkey also imports LNG from Qatar,and is planning to expand this agreement in the future. Turkey has made huge investments in LNG storage facilities to increase the share of LNG in its energy basket in the mid-to-long-term future. Turkey also invests in renewable energy, eventually hoping to decrease foreign dependency in the long term.

 

Turkish private and state energy firms are interested in investment opportunities in the Iranian energy sector, with state energy company Botas signing deals to support work on phases 22-24 of the South Pars Field project in 2007 and 2008. Iran and Qatar share the South Pars Field together. Botas was to invest $12 billion in three phases, with half the production going to Turkey and the rest to the EU. However, due to EU and U.S. sanctions, these agreements were cancelled.

 

By 2015, and after the nuclear agreement, Iranian officials frequently called for around $200 billion in foreign investment and technology to revive its oil and gas production. In 2017, Turkey’s Unit International, Russia’s state-owned Zarubezhneft, and Iran’s Ghadir Investment Holding agreed to drill for oil and natural gas in Iran. This deal, worth $7 billion, involves work on three oil fields and one large natural gas field in the country. Unit International also has signed an agreement with Iran’s Energy Ministry to build power plants in other parts of Iran. This agreement, worth $4.2 billion, will boost capacity by 5000 megawatts. However, Unit International will likely withdraw from Iran’s energy sector due to U.S. pressure.

 

Still, Iran offers exciting prospect for Turkish investors. This investment can ensure Turkey achieve its goal of becoming a transit hub for moving gas and oil supplies from supplier countries to world markets. Although Turkey has at times complained about the quality and price of Iranian gas, the question is whether Iran will be able to be become a reliable supplier for Turkey in the post-sanctions era. Iran needs to press for an extension of the gas agreement with its Turkish counterparts. If Turkey does not extend this agreement, then the results will be a serious step back for Iran. Iran also needs Turkey to send its natural gas to Europe in the mid-term in order to regain its position among suppliers.

 

Turkish energy firms hold the power to provide Iran with needed investment, so Iran will be heavily dependent on Turkey for the foreseeable time. If Iran is interested in retaining its share in Turkey’s energy market, it must revise its regional policy and aim to solve problems with the United States, using the potential of its energy supplies to its advantage and attracting foreign investment to develop its facilities. Iran needs to offer Turkey a higher discount in order to sway the country from the temptations of U.S. and Qatari LNG and Russian and Azerbaijani natural gas. Further, Iran needs to develop a domestic legal framework that better facilitates contracting and granting commercial rights. At present, however, these problems are far from being resolved.

 

Omid Shokri Kalehsar is a Washington-based energy security analyst. Follow him at @ushukrik and uskenergy.com.

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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.

 

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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

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Energy is a Backbone of Azerbaijan-Turkey Relations

Europe is a constant hunger for oil and gas despite the development of the alternative energy resources. In this regard Azerbaijan takes an important role for Europe. Baku-Tbilisi-Kars is a chain that will unite East to the West. Energy consultant Omid Shokri Kalehsar commented Eurasia Diary’s questions on the Azerbaijan-Turkey relations and Baku-Tbilisi-Kars railways project.

 

– Yesterday the President of Azerbaijan arrived to Turkey. What are the objectives of the visit?

 

– Azerbaijan–Turkey relations have always been strong with the two often being described as “one nation with two states” slogan. Erdogan attended in opening cermony of  Baku- Tbilisi- Kars Railway project.the project designed to be a new corridor that will connect Azerbaijan, Georgian and Turkish railways.  The project implementation began in 2007 and construction began in 2008 and it foresees the rehabilitation and reconstruction of 178 km-long railway .This project will effectively open a new rail-only corridor from the Caspian Sea to Europe via Turkey, eventually excluding the need for sea transportation once the planned rail tunnel under the Bosporus Strait in Istanbul is complete.

 

The Baku-Tbilisi-Kars project could also open a North-South rail corridor linking Russia to Turkey. This line will transport both freight and passengers and is expected to provide an alternative freight transport route to routes that transit through Iran. Energy play key role in Turkey-Azerbaijan relation and it can be describe of backbone of their relations. Both countries are interested to play important role for transporting goods from region to the consume market and in this regard Baku- Tbilisi- Kars Railway project hold a potenail to help these counteris to gain political and economic benefits.

 

Durign Erdogan trip to Baku,both president express there willing  to develop bilateral relations, increase trade volume and mainly there plan to begin using TANAP project soon. Erdogan in his last visit to Baku has expressed his country’s support to Azerbaijan’s  position on Nagorno-Karabakh.He  said that Turkey and Azerbaijan have a unanimous stance on the Armenian-Azerbaijani conflict. According Erdogan: “We speak the same language and act from the same positions”.

 

Erdogan’s remark came in response to the reports that Azerbaijan’s wishes to see Baku in the OSCE Minsk Group mission (which mediates peace between the conflicting parties).

 

 

– What role will Azerbaijan and Turkey play in the supply of energy resources to Europe?

 

– Azerbaijan began to present itself as a key ally in the European energy market, partly by retaining an interest in having a potential role in the Southern Gas Corridor. Many international transport routes, including the Baku-Tbilisi-Ceyhan, Baku-Supsa, Baku-Novorossiysk oil pipelines and Baku-Tbilisi-Erzurum, Azerbaijan-Georgia, Azerbaijan-Iran and Azerbaijan-Russia gas pipelines originate namely from Azerbaijan.It is believed that TANAP, which will later be linked to TAP. The Southern Gas Corridor project envisages the transportation of the gas extracted at the giant Shah Deniz field in the Azerbaijani section of the Caspian Sea. Gas deliveries to Europe are expected just over a year after the first gas is produced offshore in Azerbaijan.The Southern Gas Corridor pipeline system has been designed to be scalable to twice its initial capacity to accommodate additional gas supplies in the future. Shah Deniz 2 gas will make a 3,500 kilometer journey from the Caspian Sea into Europe. The existing South Caucasus Pipeline will be expanded with a new parallel pipeline across Azerbaijan and Georgia, while the Trans-Anatolian pipeline will transport Shah Deniz gas across Turkey to join the Trans-Adriatic Pipeline, which will take gas through Greece and Albania into Italy.The first gas supplies through the corridor to Georgia and Turkey are given a target date of late 2018.

 

 

 

According to the Strategic Plan of the Turkish Ministry of Energy and Natural Resources (2015-2019), diversification of energy resources is a top priority. Turkey is interested in using its geographic position in the region to become an energy transit country and regional hub for oil and gas from the Caspian Basin, Central Asia, and Iran, to European markets. Turkey is interested in using its geographical position to play a key role in the energy market.

 

Turkey needs more investment in infrastructure to increase the capacity of its refineries and natural gas storage facilities. It could be argued that energy would help Turkey to improve its relations with the EU and enhance its candidacy status. Both sides could use the increased energy and diversification of energy resources to strengthen beneficial relations and gain mutual advantage from an energy agreement. That said, many of these plans are still in the early stages of development, and it will take years for them to come to fruition. However, in the meantime it remains to be seen what advances will be made in the short term, and how quickly Turkey’s ambitions as a transit country materialise.

 

– I would like to hear your opinion on the Nagorno-Karabakh conflict. The other day Ilham Aliyev and Serzh Sargsyan met. But Sargsyan does not want to return Azerbaijani territories. What can you say about this? 

 

– In Nagorno-Karabakh conflict Minsk group has play key role but during its history we can see a little progress in its attempting to solve Nagorno-Karabakh problem. Recent meeting betwen  tow preseident has no clear effects on future this conflict.The meeting, which takes place on the initiative of the Organization for Security and Europe (OSCE) Minsk Group, will come more than a year after the leaders of the two nations last met. Minsk groups espicaly Russia hold a potentail to solve Nagorno-Karabakh conflict and is able to pressure both parties to be more active in negation process with aim of solving Nagorno-Karabakh conflict.

http://ednews.net/en/news/analytical-wing/206247-energy-is-a-backbone-of-azerbaijan-turkey-relations

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