Perspective of Iran's role in GECF

By Dalga Khatinoglu, John M. Roberts, exclusively for IRNA

The article was written Dalga Khatinoglu, expert on Iran's energy issues, head of Iran news service at Trend Agency. With the assistance of John M. Roberts, Chief Analyst and Head of Strategy, Natural Gas Europe. Roberts has testified to UK parliamentary committees on Caspian, Russian, Turkish, Kurdish and Mideast energy security issues. He is a Senior Partner with Methinks Ltd, a consultancy specializing in the inter-relationship between energy, economic development and politics. He is also a Senior Fellow at the Atlantic Council of the US. He was previously a Managing Editor with Platts and Financial Times Energy.

Iran is preparing to play host to a summit of the world's major gas producing countries against a background of rising prospects for major Iranian gas exports in the near future despite persistently high domestic demand.

The meeting of the Gas Exporting Countries Forum (GECF) on 23 November brings together such major producers as Russia, Qatar and Algeria as well as Iran. Together, the GECF's 12 member countries account for 67% of the world's gas reserves, for 64% of global LNG exports and for 42% of cross-border pipeline trade.

Iran will be hosting the meeting in the wake of the deal reached with the "5 + 1" group of major powers on the country's nuclear development, an agreement that, once ratified, paves the way for the lifting of a broad range of international sanctions on Iran.

Iran hopes the lifting of sanctions will start in the first half of 2016 and that it will lead to a country that is the world's number one gas holder, with 34 trillion cubic metres (tcm) in proven reserves, transforming itself from being not just a major gas producer but a major gas exporter as well.

Export hopes and abilities

"Iran would be able to export 200 mcm/d (million cubic metres a day) of gas in four years," said Managing Director of the National Iranian Gas Company (NIGC) Hamid Reza Araqi. That's the equivalent of 73 bcm/y (billion cubic metres a year) - or roughly half the size of the 147.7 bcm that Russia, the world's biggest gas exporter, supplied to Europe in 2014.

Iran certainly possesses the resources to make this happen. Alongside the supergiant South Pars field, operated by the Pars Oil and Gas Company and containing some 14 tcm, Iran has dozens of fields under development or waiting to be developed.

Iran's gas output since 1990 based on Energy Ministry's annual reports

The Iranian Central Oil Fields Company (ICOFC) which operates 14 gas fields and 11 oil fields and produces 93 bcm/y of gas, has operational rights in 30 undeveloped gas fields as well as 19 oil fields. To date, the company has prioritized development of South Gisho, Khartang, Halgan, Sepid baghoon, Zire and Gordan gas fields with the aim of producing more than 40 mcm/d (14.6 bcm/y) of gas in the next few years.

The National Iranian South Oil Company (NISOC) also produces 16 percent of Iran's gas, while alongside a plan to gather 6.2 mcm/d of flaring gas, this company have projects to increase gas production as well.

Iranian Offshore Oil Company is also planning to gather 10.2 mcm/a of flaring gas.

Overall, Iranian gas production (including flared and recycled gas) is expected to reach 1,000 to 1,100 mcm/d (365 to 400 bcm/y) by 2020. Currently, Iran has a capacity to produce 680 mcm/d (about 248 bcm/y) of gas (including flared and recycled gas), while its sweet gas output capacity is about 550 mcm/d (200 bcm/y). Around 300 mcm/d (109.5 bcm/y) of Iran's total sweet gas production came from South Pars and this volume is expected to double by 2020.

Iran's gas export hopes

Where will Iran's exports go? Iran currently exports around 8.9 bcm/y to Turkey and should soon add Iraq as a second major market, with Pakistan and Oman also likely to be supplied with Iranian gas by 2020. Overall, Iran has new agreements to export about 80 mcm/d (almost 30 bcm/y). These include a contract with Iraq, signed in 2013 for delivery of 25 mcm/d (9.125 bcm.y) to serve three power stations in Baghdad, while two countries are negotiating to supply a further 35 mcm/d (12.8 bcm/y) to the southern Iraqi city of Basra. It also has an agreement to supply Oman with 10 bcm/y and an agreement to supply 8.0 bcm/y (22 mcm/d) to Pakistan. Another Gulf neighbor, the UAE, is also being targeted as a possible customer.

Oman and the UAE are themselves both gas producers and members of the GECF, but with export facilities that cannot always be filled with their own gas. Iraq, too, has substantial gas resources and is an observer at GECF. All this helps ensure that Iranian gas relations with many of its neighbors are on a cooperative, rather than competitive, basis.

Iran looks to LNG Exports

It is, at least partly, a rival to Qatar. Qatar is currently the world's biggest exporter of liquefied natural gas (LNG), supplying 103.4 bcm to world markets in 2014. But now Iran is looking to become an LNG exporter. In particular, it considers LNG, rather than pipelines, as the best way to get to markets in the European Union. It has already invested $2.5 billion in a 10 million-tonnes-a year LNG plant due to enter service in three years' time, with 50 percent of the project already completed.

It will be entering a crowded market. Several GECF members already produce substantial volumes of LNG, notably Qatar, Nigeria, Algeria, Russia and Trinidad & Tobago, together with GECF Observer member Oman. And with several major Australian LNG projects due to come on line by 2019, there are expectations of a glut in the global LNG market.

Iran appears to be taking a more sceptical line concerning possible pipeline exports to Europe. Iran considers that it would cost $6 billion to develop IGAT IX (the 9th cross-country pipeline) from South Pars towards Turkey, while developing a new system to connect IGAT IX to the EU would cost additional $10 billion. It is reluctant to consider using the Southern Gas Corridor, currently being developed to carry Azerbaijani gas to Europe, because the free space available on the TANAP line across Turkey and the TAP line from Turkey to Italy is only 14 bcm/y and 10 bcm/y respectively, while Iranian officials say the transit fees would be high.

Looking Eastward -No Rivalry from Russia

Russia, which is not an LNG supplier to the EU, does not seem to be directly concerned about Iran's LNG export plans. Nor does Iran appear to be a rival in Asia-Pacific markets that Russia is seeking to develop. Russia is looking to China, northern Pakistan, while Iran is eying central Pakistan and India.

In this context it is worth noting that the Iran-Pakistan pipeline - commonly termed 'The Peace Pipeline' could also be used to serve the Indian and Chinese markets. Speaking on 30 September, Indian President Pranab Mukherjee said: "We must make full use of opportunities offered by the recent Iranian nuclear deal" to bolster India's commercial relations with Iran, adding: "The Iran-Pakistan-India pipeline can also be revived since Iran has already built section of the pipeline in its territory." The President added: "Such energy projects could also prove to be game changers for geo-strategic stability."

As for China, it is preparing to invest $2.5 billion to construct LNG import terminals and piping from Gwadar Port (80 km away from Iran's borders) towards Nawabshah, a potential route that could be connected with the Peace Pipeline, which could then be used to transit Iranian gas alongside Qatari LNG, towards eastern China and India.

Foreign Investment - and flaring

There will be a need for upstream development to serve LNG and pipeline exports. Iran is preparing to open up 45 oil and gas fields to foreign companies in order to attract $185 billion in investment. The natural and associated gas output of these fields could add about 190 mcm/d (70 bcm/y) of gas to Iran's raw gas output.

In addition, Iran plans by 2020 to gather as much as 19.827 mcm/d (7.2 bcm/y) of gas that is currently being flared. At present, some Iranian oil fields are flaring huge amounts of gas, such as Yadavaran (1.84 mcm/d), Salman (2.64 mcm/d), Forouzan (5.6 mcm/d) and Azadegan (0.68 mcm/d).

Curbing domestic consumption

For more than 20 years, the country's gas consumption has kept pace with production, leaving little or no surplus for export. So unless Iran can optimize its consumer sectors, its ability to realize its current gas export deals will be in question.

In 2014, according to the BP Statistical Review, Iran produced 172.6 bcm and consumed 170.2 bcm, with Iranian figures suggesting that current consumption and production are both around 20 -25 bcm/y higher than this.

Natural gas already accounts for 67 percent of Iran's primary energy consumption, with around 125 bcm/y supplied to some 73,000 industrial units and around 19 million households. But the next few years are expected to see the gas grid extended to a further 19,000 industrial units and three million households. An extra 20-25 bcm/y will be required for power stations. The country is also planning to double the petrochemical plants' output over the next 5 years, requiring an extra 25 bcm/y of gas to raise output to 120 million tons a year. At the same time, plans to double the amount of gas for reinjection will require an additional 70 bcm/y.

Iran thus expects gas consumption to increase by 130-150 bcm/y to reach around 330-350 bcm/y in 2020, while production is expected to climb to around 400 bcm/y.

Below is Iran's actual fossil energy consumption per day according to the data derived from National Iranian Oil Refining & Distribution Company's (NIORDC) annual report

The government wants to promote energy efficiency. It has a $200-billion program to halve energy intensity. Hamid Reza Araqi, the Managing Director of the National Iranian Gas Company (NIGC), said on September 3 that Iran is optimizing the gas consumer sectors to decrease domestic consumption by 50 mcm/d (18.2 bcm/y).

If Iran can improve the efficiency of its consumption sectors significantly, then it should be able to become a major gas exporter in coming years, possibly reaching, eventually, as much as 200 bcm/y, thus rivalling Russia, which had net exports of 177.7 bcm in 2014, and Qatar, which exported 123.5 bcm.

ENDS