Iranian gas export potential to Europe after JCPOA and existing directions of Turkmenistan energy resources transportation and supply diversification.
Leyla Nagiyeva, Ph.D. student in International Relations and Economics at Baku State University
This work is devoted to the disclosing of the main trends in the conditions of competition in the world and euro-energy segments. Given article will consider the EU’s position regarding to diversification of oil and gas supplies to the EU countries, as well as the role, ways and possibilities for exporting Iranian and Turkmen energy resources to Europe’s energy markets with the purpose of reducing its dependence on energy supplies from Russia.
Key words: Iran, EU, energy sources, Turkmenistan, export, diversification
In the context of the growing efforts of the European Union to diversify natural gas supplies and against the backdrop of changes in the energy balance system and a politically determined revision of energy security risks, Iran and Turkmenistan became a potential supplier for European market. Iran has huge natural gas and oil reserves; more than Russia or Qatar. The abovementioned reserves is still underdeveloped in case of suffocating sanctions that hamper the flow necessary foreign capital and investments. Although the nuclear agreement and the mitigation of the consequences of sanctions eliminates many of the obstacles that Iran has encountered over the past decade, Iran meets various challenges on the way to becoming a world-class gas exporter .
When we come to Turkmenistan, Turkmenistan is the country of Central Asia with the 4th largest natural gas reserves in the world, seeks to diversify its fuel exports from Russia, which on the way to cut imports this year to four billion cubic meters in a year from 11 billion cubic meters in 2014. The European Union, which seeks to reduce its dependence from Russia on energy supplies, is going to start receiving natural gas from Turkmenistan from 2019 . Russia currently supplies about a third part of the gas needs in Europe, but the annexation of Crimea and its participation in the military conflict in eastern Ukraine gives an additional impetus for the EU to receive for gas from alternative sources. EU’s policy is in the way for an energy alliance, a single power and gas market based on closer ties between member states with the purpose of limiting Russia’s dominant position, especially in the gas market. Contemporary position of EU is aim to taking bigger steps in the strategic direction in the scope of Trans-Caspian pipeline .
After the conclusion of the Joint Comprehensive Action Plan (JCPOA) between Iran and P5 + 1 countries (UN Five permanent members of the Security Council plus Germany), Iran began to be regarded as potential big player on natural gas in international energy markets, in the face of natural gas largest reserves (18.2% reserves of natural gas in the world in accordance with BP in 2016). But as soon as nuclear-related sanctions were removed, Iran fought against slow inflow of external investment in the oil sector because of the previously unprofitable contracts for redemption developed by Tehran to limit of international oil corporations in the oil and gas fields of Iran. Although Iran is accepted as a potential player in the Europe’s energy market in the future, many factors, from internal to regional and global levels, proves Iran can become an active player in European energy scene . Problems of export of Iranian Natural gas comes mainly from the internal level, where limited foreign investment and expertise is added to high consumption levels. However, the problems that Iran faces at the internal level are mostly comes from political uncertainty.
37% of Iranian oil is exported to Europe and while 63% – to Asian countries. Main buyers of Iranian oil for Europe are the Dutch-British Shell, the French Total, the Italian Eni, the Greek Hellenic Petroleum and the Spanish Repsol. After the end of sanctions era in 2016, exports of “black gold” to European countries grew by 300% .
Iran’s actual plans to be a regional superpower unit for the export of natural gas for the Europe begins from August 1994, when Tehran gave an idea of pipeline that will transport Turkmen natural gas through northern Iran to Turkey and the European market. The pipeline was opened in 1997, but the project was not capable to provide the necessary amounts for re-export . Other plans proposed in the late 1990s to export Turkmen natural gas to the Bulgaria, and then to Western Europe also were crushed because of political difficulties, as US sanctions imposed on Iran, has become an obstacle for embarking on such a large-scale project. Existing plans in the country connect to Europe, based on pipelines projects with the purpose of sending Azerbaijani natural gas to Europe through Turkey – Trans-Anatolian gas pipeline (TANAP) and Trans Adriatic Pipeline (TAP) . Basing on both pipelines, Azerbaijan will export 6 billion cubic meters of natural gas per year to Turkey and another 10 billion cubic meters per year to European buyers Shah Deniz. TANAP will be opened by 2019, while TAP will be opened in 2020. Iran can start sending relatively a small amount of natural gas to Europe through twin TANAP-TAP to the top 2020 and gradually increase these quantities over a decade based on availability of further idle capacity and ability to pump more gas from its fields .
It is very important for Turkmenistan to diversify its export ways, while it is very important for the EU to diversify its imports. The project, intended for the delivery of Turkmen gas to Europe via the Caspian Sea via the so-called “southern gas corridor” with Azerbaijan and Turkey as member countries, has been stuck for many years because of political, environmental and financial uncertainty . Turkmenistan and Turkey as a result signed a framework agreement on the gas supplying to the Trans-Anatolian gas pipeline (TANAP) project, which will receive gas from the Azerbaijani Shah Deniz II field in the Caspian Sea. To connect to TANAP, Turkmenistan needs to build its own 300-kilometer (187-mile) link under the Caspian Sea, a disputed zone between Russia, Kazakhstan, Turkmenistan, Iran and Azerbaijan . TANAP’s construction is expected to be completed by the end of 2019, to begin gas supplies from the Shah Deniz II field in 2019 .
The pipeline, called the Southern Corridor with a total length of 3,500 km, will connect the Shah-Deniz field of Azerbaijan with the Caspian Sea to Italy. The Republic of Azerbaijan, as a oil-rich and rapidly developing country, is currently ranked fourth in terms of total import value among neighboring countries of Iran. Last year, the country spent more than $ 7 billion on imports, with Iranian exporters absorbing only about 5 percent of that amount . Of course, Iran 359 million dollars in exports to Azerbaijan , the sixth largest exporters in the country but for the same reason mentioned above (non-membership of both countries in the World Trade Organization) named Iran among exporters of goods to Azerbaijan to be seen.
The pipeline will run from Georgia, Turkey, Greece and Albania, and this project will be invested in a total of about $ 40 billion, most of which will be invested and expected in the second half of 2020 with an annual capacity of 16 billion cubic meters of gas commissioning. The terminal capacity of the pipeline is 31 billion cubic meters per year, but to achieve this, stations need to increase gas pressure and new sources of gas that can be supplied from Turkmenistan, Iran, Iraq, Egypt and even Israel. European Commission spokesperson Berger said that Europe intends to help Turkmenistan diversify gas export markets. In early 2016, Russia reduced gas imports from Turkmenistan. Ashgabat also stopped gas supplies to the Islamic Republic this year because of Iran’s debt of 1.8 billion dollars and is currently the only gas buyer in China, which annually receives more than 30 billion cubic meters of Turkmen gas.
There are two options for delivering Turkmen gas to Europe. These are deliveries through Iran or through a subsea pipeline on the bottom of the Caspian Sea. However, Iran has already expressed its opposition to this project many times, arguing that it is easier and more economical to build a land pipeline through its territory. One example of cooperation between the two countries in the field of transit is the sale through Iran of Turkmen gas to Turkey, from where it will find access to European markets. The idea to export gas to third countries through the territory of Iran appeared in the 90s. Then Shell prepared a feasibility study for the construction of a transnational gas pipeline to Europe via Iran and Turkey. But the project was postponed because of the West’s wary attitude toward Tehran’s nuclear program . The example of realized project is deliveries of Turkmen gas to the Islamic Republic of Iran on two new routes: Korpeje (Turkmenistan) – Kurtkui (Iran) and Dovletabad (Turkmenistan) – Serakhs (Turkmen-Iranian border) – Hangeran (Iran). In 2014, 5.9 billion cubic meters of Turkmen natural gas were supplied to the Islamic Republic via these pipelines. The total design capacity of the gas pipelines allows bringing the deliveries to 20 billion cubic meters annually. Along with the diversification of gas supply routes in the eastern and western directions, Turkmenistan has intensified its attention to the southern export direction, towards Iran. In turn, Tehran also shows interest in Turkmen gas, hoping through its expansion of energy cooperation with Turkmenistan to increase its involvement in the implementation of projects for the export of Caspian hydrocarbons to foreign markets .
The gas dispute between Turkmenistan and Iran continues from January 1, 2017, when the Iranian side stopped receiving gas from Turkmenistan. While NIGC in its statements is writing about the cessation of supplies, the Ministry of Foreign Affairs of Turkmenistan stated about their “forced restriction” because of the unsolved debt problem. According to the information of the Ministry of Foreign Affairs of Turkmenistan, at the beginning of the dispute the debt was estimated at $ 1.8-2 billion. In January, NIGC announced a possible appeal to international arbitration. According to the publication, the debt of NIGC to the Turkmen supplier was formed in the winter of 2007-2008, when due to cold weather Iran was forced to increase the volume of gas purchased in Turkmenistan. According to the statements, the administration of the current president of Iran Hasan Ruhani claims that he has fully paid for the supplies during the last 3.5 years. Earlier debts were formed under another government and their size, according to the administration, should be discussed with the Turkmen side.
In July, 2010 Turkmen oil, while it’s volume is not very large, was sent to the port of Ceyhan via the Baku-Tbilisi-Ceyhan oil pipeline, which is supplying Turkmen oil by tankers along the Caspian Sea. On this day, the pipeline transported 1 million 57 thousand barrels of crude oil. So, Dragon Oil (UAE, Great Britain), leading its main operations in the Turkmen part of the Caspian Sea, in the first half of 2014 increased the export of raw materials to 5.9 million barrels compared to 5.7 million barrels a year earlier . Turkmen companies continue to cooperate with foreign companies in the scope of natural gas delivery with understanding that the fundamental principles of partnership are the existence of mutual interest and mutual benefit, and also taking into account the fact that these important components of interaction in the gas sector largely depend on the financial- economic situation in the world.
Several conditions are necessary for the export of Turkmen gas to Europe. Iran and Russia oppose the construction of the gas pipeline of the Caspian Sea by Turkmenistan and Iran, although it has been taking gas in the form of a swap contract for more than a year and supplying Azerbaijan with the same amount of gas. But Iranian officials have repeatedly stated that they are ready to participate in the Turkmen gas pipelines in the lower region, but not in Turkey and European markets.
In addition, both South Atrium Pipeline shareholders and gas buying European companies with Turkmenistan must sign a contract and enter into purchase agreements that have not yet been implemented.
Further, although Turkmenistan, after Iran, Russia and Qatar, is the fourth largest global gas supplier, most of its gas reserves are located in the east of the country, which is located 1000 kilometers from the Caspian coast. “If we calculate the width of the Caspian Sea, Turkmenistan’s gas fields will at best run about 5,000 kilometers from Italy, and the cost of gas transit will be very heavy, so Turkmenistan needs to sell its gas cheaply, which in Europe can be sold to other exporters to compete . Turkmenistan has several small gas fields in the Caspian Sea that can connect gas pipelines to Azerbaijani oil and gas fields in the Caspian Sea, but the volume of gas to be delivered will be small. According to this, Turkmenistan needs to invest billions of dollars to build pressure stations in South Dura.
While Iran and Turkmenistan have the potential to become a major exporter of natural gas in the world markets due to its rich resources, the constant securitization of Iran’s energy sector is detrimental to the prospects for consistent policy development in different terms unless political reform is realized. In the Middle East, Iran is entangled in political alliances with Russia, which is a major stakeholder in global gas markets. Although the prospects for long-term strategic cooperation between Tehran and Moscow in the Middle East are still unclear, Tehran’s future energy plans in the EU can be felt. These factors may raise doubts about Iran’s ability to prove itself as a reliable and permanent gas supplier to the EU for the long term.
Political uncertainty in the EU has a direct impact on the energy security of the bloc and energy solidarity between the member states. After Brexit is implemented and in the face of the emerging political uncertainty where Russia wants to maintain its market share and even increase it in Europe, new suppliers of conventional gas from outside the EU, such as Iran and Turkmenistan, will face tough competition from Moscow. In this face, the issues of supply diversification and partnership with potential suppliers are becoming increasingly important in Brussels. Iran and Turkmenistan, possessing huge reserves of oil and natural gas, are interested in diversifying the transport infrastructure that can provide reliable and long-term deliveries to consumers of cleaner energy resources, by creating a ramified network of a multivariate pipeline system.
Attempts by the EU to cooperate with Iran in improving the efficiency of its energy sector support the long-term energy security strategy of the bloc. The introduction of a more efficient infrastructure into the Iranian energy sector and the inclusion of renewable energy sources will lead to the creation of surplus natural gas that can be exported to the EU in the future. The growing increase in natural gas consumption in Iran was recently seen as a threat to the country’s export projects and even to the energy security of the country if it was not effectively controlled. Based on this üe can insist that Iran should become the world’s largest importer of natural gas by 2025.
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