Iran's Weight in the GECF and Regional Gas Markets

Iran is preparing host to a Summit of the world’s major gas producing countries this coming week.

The meeting of the Gas Exporting Countries Forum (GECF) on November 23rd will bring together major producers including Russia, Qatar and Algeria as well as Iran. Together, the GECF’s 12 member countries account for 67% of the world’s gas reserves, 64% of global LNG exports and 42% of cross-border pipeline trade.

Iran holds 34 trillion cubic meters in gas reserves, which ranks them number one in the world, but Iran's large domestic consumption only allows export of approximately 30 million cubic meters per day (mcm/d) of gas despite a 700-mcm/d production level.

However, in the light of country's hope for lifting of sanctions in the first half of 2016 as well as accelerating the development of its giant South Pars field, Iran is preparing to become a major gas exporter in the medium term.

Ahead of the GECF Summit, Iran's advantage is its unique geological opportunities to realize an interaction atmosphere among members instead of competition as well as to link regional producers-customers.

For instance, Russian Energy Minister Alexander Novak said earlier that Gazprom has offered gas supplies to Iran under a swap arrangement, delivering gas to Iran's northern regions and taking Iranian LNG in Persian Gulf.

Iran has an LNG plant that is 50 percent developed with a production capacity of 10.5 million tons (or above 14 billion cubic meters natural gas), which is expected to become operational by 2019-2020.

Russia and Iran are connected with 1474.5-km-long Gazi-Magomed-Astara-Bind-Biand gas pipeline, put into operation in 1971 and Azerbaijan upgraded it last decade and installed the Astara gas compressor station. However, the delivery capacity of this pipeline is restricted and Russia can deliver only 4 billion cubic meters of gas per year (bcm/y) to Iran's northwestern regions. Iran has a plan to construct a 1850-km pipeline with 110 mcm/d (40 bcm/y) of gas transit capacity to these regions, aimed to gas export to EU as well. The cost of construction of this pipeline (9th cross-country pipeline) is estimated at $6 billion. Alongside the construction of this pipeline with 17 gas compressor stations, the operational expenditures of 110-mcm/d gas transit from South Pars to northwestern regions may reach even above $1 billion annually.

Iran has also a $4 billion project (11th cross-country pipeline) to deliver 110 mcm/d of gas from South Pars to northeastern regions, of which operational expenditures may reach $250 million to $300 million annually. There are infrastructures, connecting Russia to Iran through Turkmenistan to carry out gas delivery several times more than the Azerbaijani route.

On the other hand, Iran is to boost gas production levels above 1.3 bcm/d by 2020-2021.

Overall, Iran has a new agreements to export about 80 mcm/d (almost 30 bcm/y). This includes a contract with Iraq, signed in 2013 for delivery of 25 mcm/d (9.125 bcm.y) to serve three power stations in Baghdad, while two countries are negotiating to supply a further 35 mcm/d (12.8 bcm/y) to the southern Iraqi city of Basra. It also has an agreement to supply Oman with 10 bcm/y and an agreement to supply 8.0 bcm/y (22 mcm/d) to Pakistan. Another Gulf neighbor, the UAE, is also being targeted as a possible customer.

Oman and the UAE are themselves both gas producers and members of the GECF, but with export facilities that cannot always be filled with their own gas. Iraq, too, has substantial gas resources and is an observer at GECF. All this helps to ensure that Iranian gas relations with many of its neighbors are on a cooperative, rather than competitive, basis.

Oman's gas consumption almost doubled from 2009 to 2013. Currently the country imports above 5 mcm/d of gas through the Dolphin system, but  HE Salim al Aufi, Undersecretary of the Ministry of Oil and Gas, said last April that with the rapid expansion of power generation capacity, industries and refinery projects in the sultanate, the consumption of natural gas will increase by over ten per cent annually from this year.

Coming to Pakistan it is worth noting that the Iran-Pakistan pipeline – commonly termed ‘The Peace Pipeline’ could also be used to serve the Indian and Chinese markets. Speaking on 30 September, Indian President Pranab Mukherjee said: “The Iran-Pakistan-India pipeline can be revived since Iran has already built section of the pipeline in its territory.”

China is to build a $2 billion worth gas pipeline with 700 km length from Gwadar Port to Nawabshah to supply gas the thermal power plants.

It has been expected that regarding Iran-Pakistan's gas agreement as well as placing Gwadar port in 80 km distance with Iran's borders, alongside Qatari gas, Iranian gas also can be delivered Nawabshah and this pipeline can be stretched towards China or India.

State-run Gulf energy company Qatargas will supply Pakistan with 3 million tons of LNG (equals to 4.14 bcm) annually for 15 years. However, Pakistan's Finance Ministry's forecasted that this country would need about 290 mcm/d of gas by 2025.

It seems Pakistan has no choice but to import Iranian gas. This country also is keen to import Turkmen gas through the TAPI project, but the delivery capacity of this pipeline is far less than Pakistan's forecasted gas demands in 2025.

Beside regional countries, Iran can develop further LNG plants over a ten-year period to become gas supplier to EU, but for this goal, the Islamic Republic should decrease energy intensity significantly. Natural gas shares about 70 percent in Iran's actual primary energy consumption, which is above 1.6 billion barrels of oil equivalent.

The country also needs to double the gas-injection to old oil wells to above 70 bcm/y, to increase gas delivery to power plants by 20 bcm/y to curb liquid fuel consumption and to increase gas supplement to industrial, petrochemicals and housing sectors in coming years.

If Iran can improve the efficiency of its consumption sectors significantly, then it should be able to become a major gas exporter in coming years, possibly reaching, eventually, as much as 200 bcm/y, thus rivalling Russia, which had net exports of 177.7 bcm in 2014, and Qatar, which exported 123.5 bcm.

Dalga Khatinoglu, exclusively for Iran’s Oil Ministry’s magazine.

Mr. Khatinoglu is a Natural Gas Europe analyst focused on Iran's energy sector and head of Iran news service at Trend News Agency