In near future, gas refineries of phases 13, 22, and 24 of South Pars will be inaugurated officially. This means Iran’s greater share of gas field against its rival Qatar, but situation of Iranian gas exports is not very good.
To know more about the issue we reached out to Washington-based Senior Energy Security Analyst Omid Shokri Kalehsar. He is currently serving as a Visiting Research Scholar in the Schar, School of Policy and Government at George Mason University.
Why Iran has not been successful in exporting gas despite its success in gas production so that the project of exporting Iranian gas to Pakistan and Oman have not been fruitful after many years?
Exporting natural gas to neighbors is Iran’s priority. According to strategy of Ministry of Oil, after all phases of South Pars will be online, Iran would be able to exports about 200 mcm natural gas to neighbors. Iran has some natural gas projects. Iran-Pakistan pipeline will be one of Iran natural gas projects. Iran completed required infrastructure by 2014 to deliver natural gas to Iran-Pakistan border. But Pakistan due to financial problems and capabilities did not build pipeline to Iran-Pakistan border. Saudi is trying play important energy diplomacy in Pakistan. And during Bin Salman’s visit to Pakistan they signed some agreements in energy sector and it seems that it will not be easy for Iran to export natural gas to Pakistan in short-term.
Iran has also planned to deliver natural gas to Oman by 2020, but by March 2019, there is going to be a major development in Iran-Oman pipeline. According to the agreement Iran must export 1.5 bcm natural gas to Oman. Iran also is interested to use Oman LNG facilities to produce LNG and export LNG. By October 2018, Oman Ministry of Oil set a tender to choose a company for construction pipeline in Oman territory.
Only %20 of Iran’s gas export pipeline capacity to Basra, Iraq is active. Why Iran has not been able to utilize the full capacity of the pipeline?
The major problem is due to sanctions. Iraq can’t pay for natural gas which imported from Iran. I think there is no major problem in natural gas production. During Summer Iran export more natural gas rather than Winter. During winter domestic consumption is high and Ministry of Oil has to transit more natural gas to domestic pipeline network. It can be expected by coming months’ capacity of natural gas export to Iraq to be increased. Domestic consumption in Iran is too high. Iran needs to use energy efficiency in all sectors to increase domestic consumption. At present majority of natural gas agreements are long term (20 or 25 years) and it is not clear why Iran-Iraq natural gas pipeline period is just for six year. It possible for Iran to get oil and gas debt with Iraq currency Dinar.
Only 5 to 6 years remain to termination of the contract for the sale of Iranian gas to Turkey and Iraq, and on the other hand, Iran has not been able to find new markets for its gas. What should Iran do for exporting regarding to the increase of gas production?
Exporting natural gas to EU market is Iran second priority. Natural gas export to Europe requires a much longer pipeline than the Persian Gulf states. As you know, the only logical route to export gas from Iran to Europe is Turkey, although in the past, several transit routes were considered, including Iraq, Syria, the Islamic pipeline, Armenia and Georgia, but at present, Turkey is the right option for Iran to export gas exports to Europe.
The pipeline needed to transport gas from Assalouyeh to the Turkish border is about 2,000 kilometers. Exporting gas from Turkey to the first European country also requires at least another 2,000 kilometers of pipeline, which is much longer than the 200-kilometer pipeline to the Persian Gulf states. Turkey, on the other hand, is not willing to transit Iran’s gas because of its adoptive policies. It wants to be the gas hub itself, the recipient and distributor of gas, which is by no means accepted by Iran. In addition to the logistical and geopolitical issues associated with Iran’s gas exports to Europe, there is also a price dispute.
During past year Iran and Turkey hold a round of negotiations to extend Iran-Turkey natural gas pipeline period. But there is no major progress in negotiations. Iran asked Turkey to import more natural gas and Turkey asked Iran to give more discount in natural gas price. Turkey is importing natural gas from TANAP project from Azerbaijan and by 2019 and Turkey will begin to import more natural gas from Russia via Turk Stream project. Turkey also increase LNG import from Qatar and doubled importing LNG from US. Turkey also made huge investment in renewable energy. It means that Iran natural gas in Turkey energy market is losing its importance. Iran needs more active foreign policy and energy diplomacy to keep its share in regional market and also increase its share.
What will be the possible effect of completion of the North Stream II project on the future of Iranian gas exports?
In EU market there is major competition between Russia, Qatar, US and Australia. Russia is using different pricing system and export policy for every country in EU market to keep and increase its share in EU market. US is against EU’s more dependency on Gazprom. Last December US asked EU members to import more LNG from Qatar instead of importing natural gas from Russia. At present Russia has two major projects to deliver natural gas to EU market. Turk Stream and North Stream II. US is against North Stream II.
US due to shale gas revolution is trying to export more natural gas and LNG to neighbors and its allies. Germany needs Russia natural gas and has welcomed North Stream II project. All developments show that Iran will face major challenges to be a key player in natural gas market in both regional and world natural gas markets and also in short term or midterm it will be hard to Iran to be natural gas exporter to EU.
Due to US sanctions no major foreign energy firms are interested to invest in Iran energy sector. In my opinion the major problem in Iran energy sector 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). These variables are far from being achieved as we speak,”.
Interview by Payman Yazdani