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.

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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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