Energy Politics in Iran strategy for Prospects for gas export to Europe

Yasaman Mirfendereski Myrto Theofilidi

26/01/2007 1

26/01/2007

Content

Iran strategy for natural gas

„ Energy overview

„ Geo-strategic position

„ Gas Export

Prospects for gas export to Europe

„ Natural gas in Europe - Overview

„ Prospects of gas supplies

„ Existing and planned gas pipelines

„ Alternative option - LNG

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Energy overview

„ Energy sources

„ Energy production and demand

„ Oil

„ Natural Gas

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26/01/2007 Energy overview: Energy sources

The world's second biggest proven oil reserves after Saudi Arabia and the second biggest gas reserves after Russia.

„ Fossil fuels dominate domestic energy use. Oil and gas account for 98%.

• Oil accounted for 49.5% of Iran’s primary energy demand in 2004, down from 84% in 1971. Its share is expected to fall to 41% by 2030.

• Natural gas accounted for 48.6% of Iran’s primary energy demand in 2004, up from only 12% in 1971. The government has promoted gas consumption – partly through subsidies -- to free up oil for export. Gas demand is expected to increase by 3% per year, accounting for 55% of primary energy demand by 2030.

„ Coal, hydro, nuclear energy and renewable energy: each less than 1% of Iran’s primary energy demand in 2004

http://www.iea.org/Textbase/stats/balancetable.asp?COUNTRY_CODE=IR 4 26/01/2007 Energy overview: Share of total Energy supply

Oil 49,5% Hydro 0,7% Comb. renewable. & waste 0,5% Coal 0,7% Gas 48,6% Source:IEA Energy Statistics 145,853 ktoe 5

26/01/2007 Energy overview: Oil production and demand

„ Oil reserves: 137.5 billion barrels at end 2005, 11.5% share of total (second largest after Saudi Arabia with 264.2 billion barrels, 22% share of total)

„ Oil production: 4.04 mb/d at the end 2005 and is projected to increase to 4.5 mb/d in 2010 and 6.8 mb/d by 2030

„ Oil consumption: 1.66 mb/d at the end 2005, 2.0% share of total

„ Oil exports are now 2.4 mb/d and are expected to be 2.8 mb/d in 2010 and 4.4mb/d in 2030, accounting for 12% of Middle East exports.

6 26/01/2007 Energy overview: Gas production and demand

„ Natural gas reserves: 28 tcm, 14.9 % share of total (second-largest in the world after Russia with 47.82 tcm, 26.6% share of total)

„ Gas production: 87 bcm at 2005, 3.1% share of total and is expected to grow to 110 bcm in 2010 and 240 bcm in 2030.

„ Gas consumption: 88.5 bcm at 2005, 3.2% share of total

„ Natural gas trade movement 2005 by pipeline: - Import: 5.8 bcm from Turkmenistan - Export: 4.32 bcm to Turkey

„ Till now, Iran was a net importer of gas but is expected to become a net exporter of 5bcm by 2010, increasing to 30 bcm in 2020 and 57 bcm in 2030.

bcm: billion cubic meter Source:Oil and gas Journal 2005 7

26/01/2007 Energy overview Evolution of energy production

Source:IEA Energy Statistics 8 26/01/2007 Energy overview: Internal issues

„ Energy crisis: Iran revolution of 1979 followed by Iran-Iraq war and US sanction - The loss of the Iran‘s energy supply.

„ Energy subsidies: equivalent to 10% of GDP with the average overall subsidy rate of 80.4% - By removing subsidies oil demand would be 6% lower and gas demand would be 13% lower in 2030. - Removing subsidies could give Iran 48% savings in energy and a

49% reduction in CO2 emissions.

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Gas overview 26/01/2007 Reasons for Iran not becoming a net exporter of gas

„ strong demand at the domestic market for fuel

„ domestic environmental policies pertaining to substitution of fuel oil and gasoil with natural gas

„ gas usage for re-injection into the oil fields

„ Increasing gas exports may lower crude oil exports

„ the inability of some potential buyers in separating politics from business

„ resolving long festering disputes such as the India-Pakistan dispute over the status of Kashmir. Source : International Energy Agency „ sanctions could make it difficult for any pipeline project involving Iran to obtain financing 10 „ insufficient investment resources 26/01/2007

Geo-strategic position

„ Iran shares land and sea borders with 15 countries

„ Iran, located strategically in the vicinity of Russia, the CIS countries and the Caucasus, as well as on the eastern border of Europe

11 Source: www.heartland.it

26/01/2007 Geo-strategic position Iran gas situation

„ Second largest natural gas reserves of the world (28.2 trillion cubic meters of proven natural gas reserves of the world) „ Around 62% of Iranian natural-gas reserves have not been developed. „ Iran’s major gas deposits: in the southern part of the country „ The major recognized natural gas deposit of the offshore portion: The South Pars field in Persian Gulf (500tcf, or 8% of the entire world’s or 40% of Iran’s total natural gas reserves) „ Potential customers for Iran's gas: Turkey, Ukraine, Europe, Pakistan, Armenia, Azerbaijan, India, Taiwan, South Korea, and coastal China (both EU markets in the west and the growing energy markets of South Asia and beyond)

„ Possible export ways: either via pipeline or by LNG tanker

Source: www.stainless-steel-world.net/ 12 26/01/2007 Gas Export Iran Gas Export policy in general

„ policy of peaceful engagement with its neighbors and trade partners

„ plan to become a major natural gas producer and exporter for the world market within the next decade (increase the gas production from current 260 bcm/y to 400 bcm/y in the next ten years and to, at least, 600 bcm/y in the next 20 years)

„ interested to have 10% of gas trade of the world in form of export through pipeline, LNG or others.

Statement by: M.A. Sarmadi-Rad, Director of Regional Economic Cooperation, MFA of Islamic Republic of Iran 13

26/01/2007 Gas export Pipeline network

14 26/01/2007 Gas export Gas network

Source: www.heartland.it

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26/01/2007 Gas export Gas Pipeline-Domestic

Source: www.heartland.it

16 26/01/2007 Gas export Gas Pipeline Projects

Main Main (sub)contractors; Name and route Dates operators main suppliers IGAT 1 (First ) IGAT 2 Snamprogetti, Saipem Currently being constructed IGAT 3 by Russian and local contractors IGAT 4 in discussion stage South Pars ? ; twin Total Hyundai Heavy Industries Started 1999 undersea pipelines Iran-Armenia Started 2001 Iran-Armenia-Georgia- Under discussion Crimea-Ukraine (? Europe?) Khoi (NW Iran) - Azerbaijan Started 2001 Iran- Turkey Started 1996 (extended to Greece, 2002); ? Greece (? W. Europe?) operational 2000 BHP (Iran ? Pakistan ? India) To start 2002; then shelved Billiton Iran ? India via sea NIOC Snamprogetti and Saipem Starts 2002 17 Source: www.stainless-steel-world.net/

26/01/2007 Gas export Gas Export situation via pipeline

„ Presently, Iran is exporting gas to Turkey.

„ Export of natural gas to Armenia and Azerbaijan is imminent.

„ The natural gas pipeline to Pakistan and India, “Peace Project” is being seriously followed up.

18 26/01/2007 Gas export Export prospects

„ Russia may not be able to meet the increasing demand of Europe (growing demand for natural gas in FSU countries and in its domestic market.) „ A viable swap arrangement can be reached between Iran and Russia (Russia‘s fear of Iran becoming a gas monopole) „ Azerbaijan tendency to buy Iran’s gas from 2007 (because of price increase of Russian gas) „ Fast-growing population of Pakistan and its growing demand for gas over the next two decades „ India's gas demand will almost double by 2015 „ Gas pipeline from Iran to the Armenia and the possibility of expanding the project to export more natural gas to pass through Armenia for other countries

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26/01/2007 Gas export Iran-Pakistan-India pipeline

Source: Afghanistan Iran to India Natural Gas Pipeline, TED IRAN Pakistan India

Dehli

20 26/01/2007 Gas export Iran-Pakistan-India pipeline

„ India - A broader market for Iran’s gas - Iran hopes to gain political support from India

„ Pakistan - Strategically important for Iran (check US influence in the region) - The Pakistan as a transit route to export natural gas to India. (a source of income for also increase its stability in the region)

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26/01/2007 Gas export LNG Projects

Four LNG plants on the Persian Gulf coast with a total capacity of nearly 37mt/y.

The LNG projects are: 1- Persian LNG with a capacity of 10.6 mt/y targeting European countries, 2- Iran LNG with a capacity of 8.8 mt/y targeting European and Indian markets, 3- Pars LNG with a capacity of 8.8 mt/y targeting Far East market, and 4- NIOC LNG with a capacity of 10 mt/y targeting variety of world markets.

22 26/01/2007 Gas Export LNG Map

Source: www.heartland.it

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26/01/2007 Gas export Problems concerning LNG

„ Lack of experts in field of LNG.

„ high development, storage and transportation costs

„ stiff competition, particularly since many other regional LNG suppliers (Oman, Qatar and the UAE) have already locked up much of the Far East market.

„ Most LNG plants use technology developed by U.S. companies.

24 26/01/2007 Conclusion

„ Despite having the second biggest reserves, being a net importer

„ Plan of increasing the gas production to become a major exporter in coming decades

„ The unique geo-srtategic position

„ Interested in extendeing and builiding the pipelines to Central Asia and Europe

„ Further extension of the exisiting pipeline network to the East (Pakistan and India) and in the west (a new line from Turkey to Europe) would complete the link between Asia and Europe

„ LNG – A possible alternative

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