Global Insight Perspective | |
Significance | Iran's senior gas negotiator has said that Iran doesn't have the gas volumes necessary to feed the European Nabucco pipeline and the South Asian, Iran-Pakistan-India (IPI) link at current levels. |
Implications | The statement reflects some genuine concerns over gas availability in Iran, although difficulties on price discussions with India and Pakistan are a more pertinent factor, following a stream of comments to the effect that Iran is unwilling to pay a subsidy to enter South Asian markets. |
Outlook | Iran is taking an increasingly protectionist approach to its gas reserves, as evidenced in the re-opening of price negotiations on the U.A.E. feed. This reflects slow progress on rolling out new gas projects to meet domestic requirements, and an increasing unwillingness to discount gas to build export markets in the midst of a globally resource-constrained environment. |
Don't Have or Don't Want?
Iran's Deputy Oil Minister and long-standing gas negotiator, Hadi Nejad Hosseinian, has said that Iran does not have the gas available to meet demand from two of its major export initiatives, the IPI pipeline to India and the Nabucco pipeline to Europe, unless buyers reduce the volumes demanded. At present, India and Pakistan are hoping to receive some 80 MMcmd (29 Bcm a year) through the US$7-billion IPI link, rising to 150 MMcmd (55 Bcm) over a 20-25-year contract, whereas Iran is expecting to supply around 100 MMcmd to the Nabucco link, where it is just one of a number of Caspian suppliers.
The comment comes after a year of increasing gas protectionism under the Conservative regime, which is eager to ensure that domestic needs are met before selling overseas. This is in contrast to the previous administration, which had provided greater incentives to develop the export business. Nejad Hosseinian made no mention of gas availability for LNG export projects, including the Pars and Persian LNG programmes, which have been assigned specific reserves from the South Pars fields with the aim of building capacity for long-distance markets.
That omission was notable, given the higher prices and technology transfer benefits available from the LNG projects, suggesting that price considerations are another unmentioned factor in Iran's newfound "resource constraints" alongside some well-known problems with the roll-out of domestic gas supplies. This follows a stream of recent criticism from various Oil Ministry officials over the low prices offered by India and Pakistan for IPI gas, which remains the major sticking point to concluding a framework agreement. An agreement had been hoped for by the end of 2005 and then June 2006, both of which have elapsed without progress on a deal (see Asia-Pacific-Iran: 26 June 2006: Price Differences Continue to Hinder Deal on Iran-Pakistan-India Pipeline). Further negotiations are now expected in August this year, although these have already been postponed for two months, as technical committees attempt to make headway on a pricing formula.
Outlook and Implications
Talk of Iranian resource constraints is almost laughable just two years after Iran was ready to offer valuable upstream exploration acreage as an incentive to get a foothold in prospective gas markets like China and India. A change in regime and a decisive shift in world energy prices later, and Iran suddenly feels it can afford to say "no". While there are some clear issues with mid-term availability due to the slow roll-out of Iranian gas for domestic needs, as the second-largest holder of reserves, the country's long-term gas availability is second to none. Indeed, the Oil Ministry is still working to plans that assign some 450 MMcmd of gas to the export market, which would provide enough gas for all of the current schemes on the table, particularly given that Iran is just one of a number of suppliers into Nabucco.
However, by waving the European market card, Iran is attempting to show India and Pakistan that it does have other options available, in the hopes that this will provide the incentive necessary for price agreement on the IPI. While the South Asians also have other supply options besides Iran, increasing demand and higher prices elsewhere still make the Iranian feed an attractive option, and one that provides greater security and lower prices than LNG. This means that Iran is in a relatively good position to win some concessions on the price, helped by strong political will to put domestic market needs first, even if export prices are higher. This political will has already been tested in the re-opening of price negotiations for the Sharjah gas feed, despite the fact that the pipeline and infrastructure is all but complete (see Gulf States: 11 May 2006: Iran Demands Price 'Modification' to Move Forward with U.A.E. Gas Supply). Missing out on the rewards of Indian and Pakistani markets would be in a different league to the Sharjah link completely, but Iran clearly feels confident enough to call the South Asians' bluff, with global demand and prices considerable factors in its favour.