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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Qatar’s Withdrawal from OPEC not a Good Sign

 

As Qatar’s withdrawal from OPEC takes effect today, the geopolitics of energy is changing. Each major energy producer is trying to take more shares in the world energy market. Political tensions between major oil and gas producers would affect regional and world energy markets. As the world’s largest exporter of LNG, Qatar gets the most revenue from it.

U.S. sanctions against Iran give an opportunity to Saudi Arabia which can use its producing capacity to produce and export more oil in the region in an attempt to weaken Iran’s position in OPEC.

A high oil price is not good for major oil consumers. The world oil market has been worrying about U.S.’sanctions against Iran.Regional tensions are one of the factors affecting members of the international organization. The tensions between Qatar and Saudi Arabia, which began in June 2017, would prevent Qatar from withdrawing from Saudi Arabia’s shadow even in an organization like OPEC. Qatar with production of 0.6 million bpd is not a major actor among OPEC members.

 

After a sharp rise in the price of crude oil to more than 100 U.S. dollars between 2011 and 2012, the price of crude oil gradually shrank in 2016 and reached a low of less than 40 dollars. The organization was unable to find a solution for the crisis, which had a huge impact on its member states.

Oil producers were able to cut crude prices to 70 dollars a barrel in mid-2018 with a drop in supply. But once again the policy of the largest oil producer Saudi Arabia, along with the White House’s political and economic measures and the gap in the queue of supporters for a reduction in production, led to a sharp drop in crude oil to about 50 dollars.

In a situation where the future of oil demand is not clear in the long run, the market management method and the call for Russia to counterbalance the U.S. are also challenges to OPEC.

South Pars Gas field (North Dome) shared by Iran and Qatar is a major source of Qatar LNG production. It is the largest gas field in the world. Qatar has made it clear that by 2024 it would have used South Pars to produce 110 million tons per year.

At present, Qatar produces 77 million tons per year. Qatar’s withdrawal from OPEC is a good opportunity to increase its production from this shared filed, Iran is unable to attract more foreign technology and financial investment and Qatar’s oil production in South Pars is more than that of Iran.

According to Reuters in November, Australia grabbed the world’s biggest LNG exporter crown from Qatar in November. According to statistics, Australia produced 6.8 million tons of LNG in November, out of which 0.6 million tons were exported from Qatar.

Australia’s LNG exports rose by 19 percent in November compared to October while Qatar’s exports dropped 3 percent in November compared to the previous month, the country’s fourth consecutive decline for the year in exports.

It is not the first time that an OPEC member has withdrawn from the organization. The main point is that OPEC’s decisions are not followed by major oil suppliers and Qatar’s withdrawal is certainly not good for OPEC. As Qatar is not a major oil producer among OPEC members, it cannot cause any major changes in the oil price.

The major factor in the oil market is demand and supply. At present, the oil market is faced with oversupply which leads to a low oil price. Qatar’s withdrawal from OPEC is not a good sign for its future. If OPEC is interested in playing an important role in the world oil market, it needs cooperation and coherence among all members.

If major members continue to be inefficient in OPEC decision-making, there will not be a promising future for the organization. OPEC’s weak position favors major energy consumers. Obviously, OPEC does not have the same influence on oil prices as it used to be. Its strength has slowly weakened due to the growth of producers such as the United States and Russia.

 

https://news.cgtn.com

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Supporting TAPI, S Arabia tries to decrease Iran’s regional role: Expert

The long-awaited mega gas pipeline project of Turk­menistan, Afghanis­tan, Pakis­tan and India (TAPI) connecting the energy-rich Central Asian nation with the South Asian countries was inaugurated couple of days ago, with leaders of the four countries attending its groundbreaking ceremony in Serhetabat followed by another in Herat.

Considering the facts on the ground including political differences of the involved countries in the project and also insecurity and instability in the region many experts believe the successful realization of the project will depend on the ability of the project participants to maneuver through among others geopolitical, financial and technical challenges.

To discuss the issue, we reached out to Omid Shokri Kalehsar, Senior Energy Security Analyst in Washington.

 

Following is the full text of interview with him:

 

Considering the differences between India and Pakistan and instability and insecurity in Afghanistan and Pakistan, how successful do you see the future of this project?

 

The 1,814-kilometer gas pipeline will pass through Afghanistan to Pakistan and India. At least 816 kilometers of the pipeline will pass through the territory of Afghanistan. Transport or transit security is an important part of pipeline project beside of security of supply and demand security, financial guarantee and financial sources are another key factors in any pipeline project.

 

The Turkmen economy has been fueled primarily by natural gas. Turkmenistan holds 32 trillion cubic meters of natural gas, the world’s fourth-largest reserves. With a small domestic market, Turkmenistan has been able to export the majority of what it produces. With regard to increasing energy demand in India, this country needs diversify energy supply, gas resources in Central Asia especially in Turkmenistan would be one of these resources. This project also would be beneficial for both Pakistan as consumer and transit country and for India as importer. There is a political tension in India and Pakistan relations and maybe TAPI would have positive effect of regional cooperation, stability and security. TAPI may be key factor in India- Pakistan relations to decrease tensions and develop bilateral relations. TAPI natural gas pipeline -which aims to connect Central Asian energy to South Asian consumers -each involve a high degree of intra-regional cooperation. Pakistan will gain transit fee from this project and also will consume natural gas imported by it.

 

 

How can this project affect the economy and security of the region particularly Afghanistan?

 

According to contract, Afghanistan will import gas via this project to meet it domestic demand and will gain $400000 to $500000 annually transit fee. This will help Afghanistan to gain more and partly recover its damaged economy. TAPI project will help Afghanistan to be an actor in regional energy market. The pipeline will pass through the provinces of Herat, Farah, Nimroz, Helmand and Kandahar. Taliban control these provinces. In statement which Taliban sent to local media, this group declared that they will not allow any group or state to disrupt this project. As Taliban controls this region, security threats against TAPI project in this part of Afghanistan will decrease and security concern will down.

 

Why does Saudi Arabia support the project?

 

These countries hold major oil reserves in the region and are trying to play an important role in OPEC and world energy market as well. Current tensions in bilateral relation forced countries to use any means to decrease counterpart role in regional security stability.  Saudi Arabia has expressed support for the TAPI transnational gas pipeline. Saudi’s financial support for TAPI would help Pakistan not to need Iranian gas. And it means that Iran will lose Pakistan natural gas market if TAPI materialize project. Last decade India was interested to buy Iran natural gas via Peace Pipeline, but due to US pressure this project did not materialize. It seems that when TAPI comes to online, India no more will be interested to Iran natural gas.  Pakistan and Afghanistan are Iran electricity buyer, during inaugural ceremony Pakistan and Turkmenistan agreed to export electricity from Turkmenistan to Pakistan and maybe in near future if this electricity export project materialize, Pakistan decrease electricity volume which imported from Iran.

 

What are the challenges and opportunities of the project for Iran?

 

Iran has plans to export natural gas to its neighbors, according to Iran 20 years development plan, Iran has to increase its share from world natural gas to %10. Iran signed agreement with Pakistan, Oman, and Iraq to export gas. At present only Iran-Iraq pipeline near to officially open. Pakistan is planning to import more LNG from Qatar, and last week Russian giant Gazprom announced that it  is considering the potential of delivering liquefied natural gas (LNG) supplies to Pakistan by October 2017, Pakistan and Russia signed an intergovernmental cooperation agreement for the delivery of liquefied natural gas in October last year. Pakistan currently has two LNG import terminals in operation in Karachi, however, with a total capacity of around 9.5 mtpa, a significant supply shortfall of 19 million tons of LNG per annum is still expected. It seems that if TAPI will be successful and Pakistan import more LNG from Qatar and Russia there is no more need for Iran natural gas and Iran-Pakistan pipeline.

 

How do you evaluate Iran’s energy diplomacy?

 

Energy diplomacy is a reaction to geopolitical threats and limits. In other words, using diplomatic mobility, economic planning, developing technical capacities and using economic resources to provide all conditions required for activating energy diplomacy. Iran’s share in the world energy market is insignificant. Iran could play a more active role in the world energy market, and mobility in production, export, marketing, exploration and extraction in the energy sector could create a special position for every country. Iran must be more active in foreign diplomacy to eliminate problems with its neighbors.

 

Interview by Payman Yazdani

https://en.mehrnews.com/

 

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