Iran may use export of gas to Europe as political shield from sanctions

Oil&Gas Materials 5 February 2016 14:53 (UTC +04:00)

Baku, Azerbaijan, Feb. 4

By Aygun Badalova - Trend:

Iran may attach political importance to exporting gas to Europe, in a way to complicate the possible reapplication of sanctions against the country, David Koranyi, director of the Atlantic Council's Eurasian Energy Futures Initiative and deputy director of the Atlantic Council's Dinu Patriciu Eurasia Center believes.

Koranyi told Trend that Iran's gas production potential is enormous, however yet the country faces formidable obstacles to gas exports.

"Domestic residential demand continues to grow, and gas is needed for reinjection into oil fields to keep up production,"Koranyi told Trend.

For Iran, many obstacles to foreign investment will remain even after the sanctions have been lifted, he believes.

Koranyi mentioned that Iran also plans to build up a first class petrochemical industry and export electricity regionally instead of gas.

The country's petrochemical output capacity currently stands at 60 million tons. The Islamic Republic hopes to bring this capacity to 120 million tons by 2020 and 180 million tons by 2025.

"The current price environment in Europe does not help either, it does not seem commercially viable to bring gas all the way from South Pars to the European markets," Koranyi said.

"At the same time Iran may attach political importance to exporting gas to Europe by pipeline or LNG, as it will increase its importance and complicate the reapplication of sanctions in a worst case scenario," he added.

On January 16, the International Atomic Energy Agency verified Tehran's compliance with the Joint Comprehensive Plan of Action (JCPOA), opening the way for Iran's return to the global energy market. The same day, the US and the European Union announced that they were lifting their sanctions against Iran.

Iran holds 17 percent of the world's proved natural gas reserves and more than one-third of OPEC's reserves, according to the US Energy Information Administration (EIA). As of January 2015, Iran's estimated proved natural gas reserves were 1,201 trillion cubic feet.

At the same time, Iran is the world's third-largest dry natural gas producer, after the US and Russia. In 2013, Iran became the world's largest gas-flaring country, surpassing Russia, according to the EIA.

Last year Head of National Iranian Gas Exports Company Alireza Kameli said that the export of gas to Europe is uneconomical for Iran. He also said that exporting LNG to European markets is on Iranian Oil Ministry's top agenda.

Speaking about the oil sector, Koranyi said that Iran's return will have profound repercussions for international markets.

"Iran's barrels will add to an already oversupplied global oil markets and may drive down prices further," he said.

Iran's current oil production is estimated to be around 2.8 million barrels per day (mbpd), of which about one million barrels are exported.

Free of sanctions, the country plans to increase its oil export by 500,000 barrels per day, and then raise the figure by another 500,000 to two million barrels per day within a six month period at the next step.