25 December 2021 - 16:24
  • News Code: 450805
Tehran-Baku-Ashgabat Gas Deal, a First Step  

TEHRAN (Shana) -- Although US sanctions keep putting a strain on Iran’s petroleum industry by blocking all channels of foreign investment, a recent three-nation gas swap agreement between Iran, Azerbaijan and Turkmenistan on the sidelines of the Economic Cooperation Organization (ECO) showed that Iran has activated its gas diplomacy, as promised earlier by Minister of Petroleum Javad Owji.

Now, less than four months after the 13th administration took office, Iran has signed a tripartite cooperation agreement, without fearing any US penalties for foreign investors, which could promise to develop multilateral cooperation in the energy sector and Iran's gas relations in the region.

Active Energy Diplomacy

Activating energy diplomacy and expanding Iran's cooperation with neighboring countries is one of the plans of Minister Owji with gas being one of the important platforms for activating the energy diplomacy. In less than four months, the Iranian oil minister has had foreign meetings to expand Iran’s cooperation, and these meetings and negotiations eventually led to the signing of an agreement that few expected would be concluded so quickly. But in the past month, there have been close talks between Iran, Azerbaijani and Turkmen delegations on the transfer of gas from Turkmenistan to Azerbaijan, which is in fact a gas swap agreement, regardless of media controversy and hype. Finally, on December 7, after the end of the bilateral meeting between the Iranian and Azeri presidents on the sidelines of the ECO Summit in Turkmenistan, a gas swap agreement was signed between the Iranian and Azerbaijani ministers. Under this deal, Iran would receive 1.5-2 bcm of gas a year from Turkmenistan at Sarakhs to deliver to Azerbaijan via Astara.

Ten days after the three-way gas swap deal was signed, Minister Owji received a delegation from Azerbaijan, headed by CEO of Azerbaijan’s oil company Socar, to discuss implementation of the deal, which is expected to take effect in winter. President Ebrahim Raeesi has said that the three-nation gas swap deal would turn Iran into a regional and swap hub.

Raeesi also told a group of Iranians based in Turkmenistan: “We can easily double Iran’s exports share in the regional market to $50 billion.”

Why Gas Exports Matter

According to the Gas Exporting Countries Forum (GECF) Secretariat, the share of gas in the world energy mix will increase from 23% to 27% by 2050 while gas suppliers are specific and limited. The demand for this fuel, which is very popular due to its less polluting nature, is increasing day by day. That has increased demand and constrained supply. Iran has also great potential in the gas industry. First, it has the world’s second largest gas reserves after Russia. However, in recent years, it has not been able to be an active player in the global gas trade in proportion to its reserves. Second, it has an extensive network of pipelines and gas transmission, and can easily use the capacity to export gas to countries in the region. Third, Iran has access to high seas and specialized manpower. These are some of Iran’s advantages in gas exports.

On the other hand, it is noteworthy that many of Iran’s gas fields are not yet developed. The CEO of National Iranian Oil Company has said that daily gas production is expected to reach 1.5 bcm in the next 10 years. Therefore, $70 billion should be invested in the development of gas fields during this period. The Petroleum Ministry has repeatedly stated that Iran welcomes any foreign investment in the industry.

Certainly, Iran’s view on the development of gas fields is not only its domestic market but also seeks to increase its gas exports. Turkey and Iraq are the countries to which Iranian gas is currently being exported. However, there are several negotiations with neighboring countries for gas exports, which have not been concluded due to US sanctions. However, according to the Iranian president, good negotiations have taken place in the energy sector, some of which will be announced.

Gas Trading Stimulus

Mohammad Dialami, an energy analyst, described Iran’s gas swap deal as a sign of stimulus in the country’s gas trading against the backdrop of sanctions.

“The question is: has not the US imposed sanctions on Iran? As has been the case for the past few years, such contracts should not have been made public. But what happened that made the signing of this contract public?” he asked. “We should not ignore the signing of this contract in these circumstances… we need to wait and see if Mr. Owji's team can reactivate the gas diplomacy.”

He added: “This gas agreement, albeit of small size, should not be underestimated. It is very important we are engaged in the game.”

Mahdieh Abolhassani, an expert at the Institute for International Energy Studies (IIES), also said it was a win-win deal.

“Given the situation in our country and being neighbor of the five ECO member states, as well as the conditions of the sanctions we are in, we should try to at least expand our relations with neighboring countries, and this agreement will help us in this regard,” she said.

Geopolitics

With 35,000 km of high pressure gas transmission network, Iran has capacity to transmit 1 bcm/d of gas. Such potential may be used to transport gas to neighboring countries, including Azerbaijan, Armenia, Turkey and Iraq, and even Persian Gulf countries. Also, due to the fact that most of Iran’s gas reservoirs are located in the south and west of Iran, Iran could receive gas from Turkmenistan and supply gas to Northern provinces and transfer the equivalent to Iraq, Turkey and Azerbaijan.

Majid Chegeni, CEO of National Iranian Gas Company (NIGC), said the agreement was of economic and geopolitical significance due to its role in strengthening regional ties. He said: “Economic significance aside, it would be instrumental in the gas network stability in northern and northeastern Iran.”

It is noteworthy that Iran does not pay anything to import gas from Turkmenistan and its swap to Azerbaijan.

Reza Noshadi, CEO of Iran Gas Engineering and Development Company (IGEDC), touched on another aspect of the agreement, saying: “Currently, two major pipelines are currently under construction in the region, both to bypass Iran; TAPI (Turkmenistan, Afghanistan, Pakistan and India) which has been held in abeyance due to insecurity in Afghanistan and parts of Pakistan and is a rival to the Iran Peace Pipeline. The second one is “Iran, Pakistan and India pipeline” (IPI), for which we have spent about $2 billion.”

Reasonable Price

Iran needs to activate its gas diplomacy in order to use its capabilities in this market, says Dialami. “Ring boxing diplomacy is not just one way to win, it is like chess. He used different methods to achieve his goal.”

He added: “The use of gas in the fuel mix of countries is increasing day by day, for instance, China and Japan need a lot of gas, we can sign long-term contracts with these countries, now gas prices are extremely high, we can also get our gas at a reasonable price. This is also possible through diplomacy and the introduction of opportunities for cooperation with Iran.”

“We are a gas seller and we need to sell our gas to whoever wants to buy it, so we need to be fully acquainted with the sales methods. On the other hand, along with the diplomatic missions that visit other countries for negotiations, we need an expert team from the Petroleum Ministry to thoroughly explain them the investment opportunities in the oil industry. For example, if the diplomatic delegation visits Japan, they must be accompanied by gas and oil experts, people who have a thorough knowledge of the legal and technical issues of contracts, are professional negotiators and are well able to explain investment opportunities in Iran, in which case we could hope in the activation of energy diplomacy,” the analyst said.

It seems that the Petroleum Ministry in the 13th administration is determined to expand its energy cooperation with the countries of the region, regardless of sanctions, which is one of the most important impediments to the development of Iran’s oil industry. The first step of this multilateral cooperation agreement was a gas swap deal. President Raeesi said in a televised interview that the signing agreements with other countries will be announced in the near future. Iran has over 34 tcm of gas reserves and is located in a region where gas demand is growing day by day. This agreement was the first step by the 13th administration.

Courtesy of Iran Petroleum

News Code 450805

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