The Race for Natural Gas
|Charles Recknagel||May 15th 2014|
Good diplomats find opportunities in crises, and Iran's policymakers seem to be following the rule.
Amid rising tensions between the European Union and Moscow over Ukraine, Iranian oil officials have repeatedly said Tehran is ready to supply natural gas to Europe, which currently gets 30 percent of its gas imports from Russia.
The offer by Iran, which has the world's second largest natural-gas reserves after Russia, might seem surprising when the EU currently bans the import of Iranian natural gas as part of sanctions over Tehran's nuclear program.
But Iran may hope the energy offer will add incentives for lifting the international sanctions as Tehran and world powers hold talks in Vienna this week aimed at solving the nuclear crisis.
Ghoncheh Tazimi, a scholar at SOAS in London, says "Iran's case has been somewhat strengthened with the Ukraine crisis" because Tehran is "able to shape the future energy market" and help Europe diversify away from Russia. She adds, Iran knows that "energy has always been Russia's bargaining chip and is Europe's Achilles heel."
Proposed Pipeline Route
So far, Tehran has not directly tied the offer to the nuclear talks. Instead, the offer has been made by oil officials in Tehran who have progressively fleshed it out over recent weeks.
Iranian Oil Minister Bijan Zangeneh said May 3 that "as a country that has the capacity to supply gas in large volumes, Iran is always willing to export natural gas to Europe via pipeline or in the form of liquefied natural gas (LNG)."
On May 14, Iranian Deputy Oil Minister for International and Trade Affairs Ali Majedi suggested Europe could import Iranian gas by pipeline through Turkey and that the level of exports could range from 4 million cubic meters per day to 50.
He also proposed a second pipeline route through Iraq, Syria, and Lebanon and a third pipeline route through Armenia, Georgia, and under the Black Sea. There has been no response yet from Western powers to the offer. Nor has there been one from Russia, which has every reason to be equally surprised.
The Iranians "have been speaking a lot about how they are willing to supply natural gas to Europe amid concern that Russia could retaliate against EU sanctions (on Moscow over Ukraine) by restricting supplies," Tazimi observes. "So, the fact that Iran has been very vocal is definitely going to rattle Moscow's cage."
Any move closer to the West by Tehran would reverse the current balance in the nuclear talks, which have seen the West champion a tough line against Iran compared to the more cautious approach of Moscow and Beijing. It also would run counter to recent Russian efforts to strengthen ties with Iran.
RT reported May 7 that Moscow and Tehran signed a secret deal for wide cooperation in space exploration, ranging from training Iranian cosmonauts in Russia to possible production of Earth observation and telecommunication satellites for Iran.
And "Izvestia" reported May 15 that Iran will build a ground-based facility for the Russian satellite navigation system Glonass, Russia's alternative to the Global Positioning System (GPS). The new facility would be in addition to only four other such ground-based systems outside Russia: one in Brazil and three in the Antarctic.
But if the diplomatic impact of Iran's natural gas offer to Europe has yet to be known, there is another surprising element to it that should be considered. That is the fact that today Iran is in no position to come online as a natural gas supplier to the European market anytime soon.
Experts say that Iran faces major obstacles to becoming a large gas exporter, including the need to ramp up gas production and build new transportation infrastructure. Both require massive foreign investment, something impossible under current Western sanctions.
Economist Mehrdad Emadi of the U.K.-based Betamatrix International Consultancy says Iran's oil and gas sector is in urgent need of modernization after being deprived of free access to Western technology for the better part of 20 years.
The Iranian "government's own estimate of the needs in the energy sector is something close to 300 billion dollars over eight years for investment and renewal of capital equipment," he says. Even if sanctions were lifted tomorrow, huge problems would remain. One is the size of Iran's own voracious domestic appetite for natural gas.
Bijan Khajehpour of the Vienna-based consulting firm Atieh International estimates that Iran currently produces 160 billion cubic meters of gas annually and consumes almost all of that amount domestically.
He says Tehran's current ability to export some 10 billion cubic meters of gas yearly to Turkey is made possible only by Iran's own import of about 7 billion cubic meters of gas per year from Turkmenistan.
And Iran already has other customers waiting for natural gas that it cannot yet serve. They include Iraq, Oman, and Pakistan, which all hope to import gas through pipelines once Iran increases production.
Still, energy experts say that if Iran can realize existing plans for expanding production from its major gas reserve -- the South Pars Field in the Gulf between Qatar and Iran -- it could have enough to serve its three regional neighbors and Turkey plus export some surplus to Europe.
How much the surplus would be depends upon the speed of development of the South Pars Field. But many experts estimate sizable deliveries to Europe could be possible in 10 years or less.
Interestingly, a 10-year timeframe is also what many energy experts say the EU would need to significantly diversify its supplies away from Russia. Currently, EU officials are speaking about increased imports of LNG from the United States and homegrown remedies like shale gas as possible alternative supply sources.
Whether they begin talking about Iran as well is now something to watch as the nuclear talks continue.
In the talks, negotiators from the United States, Russia, China, Britain, France, Germany, and Iran are trying to draft a final agreement by July 20, when a November interim deal under which Iran froze certain activities in return for some sanctions relief expires.
Charles Recknagel reports for RFE/RL, from where this article is adapted.