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Petroleum Economist
February 1, 2007
PIPELINES; IRAN LISTENS FOR PIPES OF PEACE.
Tehran is hoping that its energy customers' need for oil and gas will
override adverse circumstances - prices and politics are stalling
progress, reports James Gavin.
As far as Iran's aspirations to become a significant gas exporter are
concerned, 2007 started inauspiciously. Blaming exceptionally cold
weather, the government had to apologise to neighbouring Turkey for
peremptorily curtailing piped gas exports for four days in early
January.
Iranian gas supplies to Turkey, the only country to which Iran
exports at present, have fluctuated in recent months and fell to just
7m cubic metres a day (cm/d) in December - well below the contracted
rate of 24m cm/d. If the Islamic Republic is finding it difficult to
keep up supplies to a long-standing customer such as Turkey, then
what chance would it have of meeting other export commitments? That
question has been thrown into sharp relief by the inclement political
climate; the US government has adopted an increasingly aggressive
tone towards Tehran in recent months.
It is little surprise that plans for a 2,700 km, 150m cm/d overland
pipeline to India, traversing Pakistan, are not proceeding smoothly.
The scheme has faced two serious political obstacles: first, India is
uncomfortable about the prospect of Pakistan, as a transit country,
being granted control over its gas supply.
Second, the US government, turning the political screws on Iran over
its alleged uranium-enrichment programme, has also taken against the
Iran-Pakistan-India gas pipeline scheme. In March 2006, President
George Bush offered India access to civilian nuclear-power technology
as an inducement to drop the pipeline scheme.
The political tide in India has also turned against the plan to
import Iranian gas, with the former oil minister, Mani Shankar Aiyar
- the foremost proponent of the pipeline - removed from office just
before Bush's visit. An alternative, a 2,000 km offshore scheme that
would avoid Pakistani territory, has faced considerable technical
obstacles, given that water depths are up to 3,000 metres.
Disagreements over pricing have also presented an obstacle. In
August, Iran offered India a price linked to Dated Brent crude that
equated to about $8/m Btu. But India was prepared to go only as high
as $4.25/m Btu.
Iranian officials have become increasingly impatient with the lack of
progress in recent months. A new round of talks is planned between
Indian and Iranian officials, but Tehran is not optimistic. The
Iranian government has asked UK consultants Gaffney Cline to devise a
pricing mechanism for the project, but India and Pakistan have said
they will not accept the price that the consultancy puts forward,
according to Ali Arrehchi, an oil and gas analyst at Atieh Bahar, a
Tehran-based consultancy.
Iran is now threatening to abandon talks and use the gas allocated
for the India pipeline project for a liquefied natural gas (LNG)
export plant, or even for domestic consumption. But given India's
urgent need for Iranian gas, this might force New Delhi to compromise
on price.
These setbacks have not reduced Iran's interest in gas-export
schemes. The government has looked on enviously as Qatar and Oman
have won large shares of the east Asian gas market by developing
their LNG industries. However, while it would like to emulate their
success, Iran's inability to use US-made liquefaction technology or
to work with US contractors is hampering its ability to roll out LNG
export projects - under the unilateral US sanctions, US companies are
unable to work or invest in the country.
Plenty of plans, no success
While Iran's LNG plans have gone nowhere, it has also had very
limited success with gas-export pipelines. The most advanced proposal
is a 140 km link to neighbouring Armenia, which will pump just over
1m cm/y of Iranian gas from March, potentially rising to 5m cm/y. But
if Iran had any ambitions to use Armenia as a staging post for
forward exports to other countries, it has suffered a significant
setback: Gazprom, the Russian state-owned gas monopoly, has gained
control of the onward transmission system (PE 1/07 p4).
Other pipeline schemes have failed to make progress. The companies
hoping to develop the Nabucco route - from Turkey to Austria - which
envisages drawing Central Asian and Middle East gas to Europe, have
identified Iran as an important potential supplier. In 2004, OMV, the
Austrian oil and gas company, signed a memorandum of understanding
(MOU) with National Iranian Gas Export Company for the supply of up
to 25bn cm/y of gas to Europe through the proposed Nabucco pipeline.
But participating in this project appears to be beyond Iran's
immediate capabilities.
Three possibilities for Iranian exports to Europe are being
discussed. These include: using the existing pipeline from the
northwestern city of Tabriz to Turkey; constructing a parallel
pipeline to Tabriz-Turkey route; or building an entirely new pipeline
based on reserves that are dedicated to the European market.
However, Iran itself appears uncertain that it will be able to meet
that commitment. In July, the deputy oil minister, Mohammad Hadi
Nejad-Husseinian, said that if the Iran-Pakistan-India gas pipeline
became operational, there would be no gas for export to western
Europe. In addition, the recent interruption in Iranian supplies to
Turkey, the proposed gateway for the Nabucco scheme, makes Iran
appear unreliable.
Plans for pipelines to Kuwait and the United Arab Emirates (UAE) have
also stalled, despite both projects, which would involve piping gas
through shallow waters close to existing production facilities, being
comparatively straightforward.
In March 2005, Iran and Kuwait signed an MOU for gas deliveries,
reaching 8.5m cm/d for 25 years starting this year. However, Kuwait's
recent gas discoveries have reduced the country's appetite for
Iranian imports (PE 12/06 p44); additionally, Kuwait, which has close
ties to the US, is under pressure not to strike deals with Iran.
A plan to supply the UAE with gas has also encountered problems. The
UAE's Crescent Petroleum signed an MOU with Iran in 2001 to import
14.2m cm/d of gas by pipeline, but failed to agree a price. Six years
on, the two sides are still bickering. In December, the Iranian oil
minister, Kazem Vaziri Hamaneh, said his country would not export gas
to the UAE unless their proposed price was increased.
Embryonic schemes
There is also talk of gas exports to Oman and Bahrain, but these
schemes are embryonic and may well be derailed by the same obstacle -
price.
Tehran must also develop its own domestic Iranian Gas Trunkline
Network (Igat) in order to service the local market, which is growing
by 10% a year, and make various export schemes possible. The Igat
system consists of a series of pipeline links (see Table 1). Outside
Igat, a new 1,500 km pipeline link will send ethylene petrochemicals
produced at Assaluyeh and Bandar Abbas to the far north of the
country from 2007.
In June 2006, Khatam-ol-Anbia, the engineering unit of the Islamic
Revolutionary Guard was awarded a contract to build the Igat-7 link,
taking gas from Assaluyeh to Iranshahr and onward to Pakistan, using
gas from Phases 9 and 10 of the South Pars project. Ultimately, this
would service the Iran-Pakistan-India pipeline if it comes to
fruition.
However, the only realistic new gas-export schemes in the near future
are the pipeline projects to Armenia and Azerbaijan. The Armenia
route should be operational next month and bilateral talks with
Azerbaijan appear to be making progress - Baku recently said it has
accepted Iran's price for gas supply.
February 1, 2007
PIPELINES; IRAN LISTENS FOR PIPES OF PEACE.
Tehran is hoping that its energy customers' need for oil and gas will
override adverse circumstances - prices and politics are stalling
progress, reports James Gavin.
As far as Iran's aspirations to become a significant gas exporter are
concerned, 2007 started inauspiciously. Blaming exceptionally cold
weather, the government had to apologise to neighbouring Turkey for
peremptorily curtailing piped gas exports for four days in early
January.
Iranian gas supplies to Turkey, the only country to which Iran
exports at present, have fluctuated in recent months and fell to just
7m cubic metres a day (cm/d) in December - well below the contracted
rate of 24m cm/d. If the Islamic Republic is finding it difficult to
keep up supplies to a long-standing customer such as Turkey, then
what chance would it have of meeting other export commitments? That
question has been thrown into sharp relief by the inclement political
climate; the US government has adopted an increasingly aggressive
tone towards Tehran in recent months.
It is little surprise that plans for a 2,700 km, 150m cm/d overland
pipeline to India, traversing Pakistan, are not proceeding smoothly.
The scheme has faced two serious political obstacles: first, India is
uncomfortable about the prospect of Pakistan, as a transit country,
being granted control over its gas supply.
Second, the US government, turning the political screws on Iran over
its alleged uranium-enrichment programme, has also taken against the
Iran-Pakistan-India gas pipeline scheme. In March 2006, President
George Bush offered India access to civilian nuclear-power technology
as an inducement to drop the pipeline scheme.
The political tide in India has also turned against the plan to
import Iranian gas, with the former oil minister, Mani Shankar Aiyar
- the foremost proponent of the pipeline - removed from office just
before Bush's visit. An alternative, a 2,000 km offshore scheme that
would avoid Pakistani territory, has faced considerable technical
obstacles, given that water depths are up to 3,000 metres.
Disagreements over pricing have also presented an obstacle. In
August, Iran offered India a price linked to Dated Brent crude that
equated to about $8/m Btu. But India was prepared to go only as high
as $4.25/m Btu.
Iranian officials have become increasingly impatient with the lack of
progress in recent months. A new round of talks is planned between
Indian and Iranian officials, but Tehran is not optimistic. The
Iranian government has asked UK consultants Gaffney Cline to devise a
pricing mechanism for the project, but India and Pakistan have said
they will not accept the price that the consultancy puts forward,
according to Ali Arrehchi, an oil and gas analyst at Atieh Bahar, a
Tehran-based consultancy.
Iran is now threatening to abandon talks and use the gas allocated
for the India pipeline project for a liquefied natural gas (LNG)
export plant, or even for domestic consumption. But given India's
urgent need for Iranian gas, this might force New Delhi to compromise
on price.
These setbacks have not reduced Iran's interest in gas-export
schemes. The government has looked on enviously as Qatar and Oman
have won large shares of the east Asian gas market by developing
their LNG industries. However, while it would like to emulate their
success, Iran's inability to use US-made liquefaction technology or
to work with US contractors is hampering its ability to roll out LNG
export projects - under the unilateral US sanctions, US companies are
unable to work or invest in the country.
Plenty of plans, no success
While Iran's LNG plans have gone nowhere, it has also had very
limited success with gas-export pipelines. The most advanced proposal
is a 140 km link to neighbouring Armenia, which will pump just over
1m cm/y of Iranian gas from March, potentially rising to 5m cm/y. But
if Iran had any ambitions to use Armenia as a staging post for
forward exports to other countries, it has suffered a significant
setback: Gazprom, the Russian state-owned gas monopoly, has gained
control of the onward transmission system (PE 1/07 p4).
Other pipeline schemes have failed to make progress. The companies
hoping to develop the Nabucco route - from Turkey to Austria - which
envisages drawing Central Asian and Middle East gas to Europe, have
identified Iran as an important potential supplier. In 2004, OMV, the
Austrian oil and gas company, signed a memorandum of understanding
(MOU) with National Iranian Gas Export Company for the supply of up
to 25bn cm/y of gas to Europe through the proposed Nabucco pipeline.
But participating in this project appears to be beyond Iran's
immediate capabilities.
Three possibilities for Iranian exports to Europe are being
discussed. These include: using the existing pipeline from the
northwestern city of Tabriz to Turkey; constructing a parallel
pipeline to Tabriz-Turkey route; or building an entirely new pipeline
based on reserves that are dedicated to the European market.
However, Iran itself appears uncertain that it will be able to meet
that commitment. In July, the deputy oil minister, Mohammad Hadi
Nejad-Husseinian, said that if the Iran-Pakistan-India gas pipeline
became operational, there would be no gas for export to western
Europe. In addition, the recent interruption in Iranian supplies to
Turkey, the proposed gateway for the Nabucco scheme, makes Iran
appear unreliable.
Plans for pipelines to Kuwait and the United Arab Emirates (UAE) have
also stalled, despite both projects, which would involve piping gas
through shallow waters close to existing production facilities, being
comparatively straightforward.
In March 2005, Iran and Kuwait signed an MOU for gas deliveries,
reaching 8.5m cm/d for 25 years starting this year. However, Kuwait's
recent gas discoveries have reduced the country's appetite for
Iranian imports (PE 12/06 p44); additionally, Kuwait, which has close
ties to the US, is under pressure not to strike deals with Iran.
A plan to supply the UAE with gas has also encountered problems. The
UAE's Crescent Petroleum signed an MOU with Iran in 2001 to import
14.2m cm/d of gas by pipeline, but failed to agree a price. Six years
on, the two sides are still bickering. In December, the Iranian oil
minister, Kazem Vaziri Hamaneh, said his country would not export gas
to the UAE unless their proposed price was increased.
Embryonic schemes
There is also talk of gas exports to Oman and Bahrain, but these
schemes are embryonic and may well be derailed by the same obstacle -
price.
Tehran must also develop its own domestic Iranian Gas Trunkline
Network (Igat) in order to service the local market, which is growing
by 10% a year, and make various export schemes possible. The Igat
system consists of a series of pipeline links (see Table 1). Outside
Igat, a new 1,500 km pipeline link will send ethylene petrochemicals
produced at Assaluyeh and Bandar Abbas to the far north of the
country from 2007.
In June 2006, Khatam-ol-Anbia, the engineering unit of the Islamic
Revolutionary Guard was awarded a contract to build the Igat-7 link,
taking gas from Assaluyeh to Iranshahr and onward to Pakistan, using
gas from Phases 9 and 10 of the South Pars project. Ultimately, this
would service the Iran-Pakistan-India pipeline if it comes to
fruition.
However, the only realistic new gas-export schemes in the near future
are the pipeline projects to Armenia and Azerbaijan. The Armenia
route should be operational next month and bilateral talks with
Azerbaijan appear to be making progress - Baku recently said it has
accepted Iran's price for gas supply.