Will Europe be Buying Gas from Tehran in 2020?

Planned Nabucco Route (Wikipedia)

Yesterday’s Iran Economist featured an interview with Seyyed Reza Kasaizadeh, director of the National Iranian Gas Export Company, discussing Iran’s desire to export natural gas to Europe, both through the planned “Persian Pipe” project and to supply feedstock to the Nabucco Pipeline. A few translated excerpts:

Compared with other gas export projects, Iran prefers to deliver its gas to the Greek, then European markets once the “Persian Pipe” project is completed.

Iran’s position in international affairs is sacrosanct because the planned route of the Nabucco Pipeline requires Iranian participation. Iran will not lose its international position because it is one of the most important gas suppliers and has the second largest gas reserves in the region.

Plans for the Nabucco pipeline and other similar projects will not be executed without Iranian participation….If European countries want to pipe Asian gas to Europe, they will need to include Iran in their plans because the countries party to pipeline agreements like Nabucco do not have the necessary feedstock to fill the pipelines.

The parties to the Nabucco pipeline have only reached an agreement over the path of the pipe, not the volume of gas to fill it. The question is whether or not countries can ensure the necessary gas for their pipeline – this question will decide if the project is economically viable or not, and this is where talks with Iran become necessary.

Iran, as holder of the world’s second largest gas reserves, must organize its future projects such that it raises its share of world gas exports from one to sixteen percent

In the near term, it is unlikely that Iranian gas will be included in Nabucco due to the harsh and potentially tightening sanctions environment. Yet Iran has been aggressively trying to expand its gas export business, beginning exports to Armenia in May, and recently announcing a deal to build an export pipeline to Pakistan. It has also explored deals with UAE’s Dana Gas, although negotiations are currently deadlocked over price. The planned Persian Pipeline will use Turkey and Arab countries as intermediaries in the hopes of allaying sanctions risk to European energy companies of doing business with Iran directly.q

Looking at the 10 year and beyond horizon, it becomes harder to see how the sanctions regime against Iran can withstand the tide of growing energy demand and rising oil prices, which make gas comparatively more attractive. Kasaizadeh has a point about Iran’s huge (and easily produced) gas reserves. In the absence of a US-Iran deal, a point is coming where the profits to be made from Iranian gas transport will exceed the costs of American sanctions. How soon depends on your outlook for world growth and energy prices.

-WW