How can Iran become a reliable energy partner of Europe?
by Ali Ünal
ANKARASep 12, 2015 - 12:00 am GMT+3
by Ali Ünal
Sep 12, 2015 12:00 am
The Iranian nuclear agreement became more certain when Democrats in the U.S. Senate blocked the Republicans' resolution Thursday. The block was considered a significant win for the White House, and all the economic and financial sanctions are expected to be lifted in 2016, except the embargo on arms and restrictions on missile technology.
While Iran is unlikely to see much benefit from the nuclear deal until it ratifies and verifies its part of the deal, it will get immediate access to around $100 billion in frozen assets and to the international financial system that will allow it to resume some curtailed exports. This is where U.S. and the European positions differ. Although the Iranian deal was mostly considered a geopolitical issue by the U.S., Europeans are willing to accept this deal just as a new business opportunity and door to a new energy supplier. For instance, it is clearly said by the German Ministry of Foreign Affairs that Germany expects to get 10 percent of the $100 billion of the frozen Iranian assets by signing new business agreements. Likewise, Iranian business people are already increasing the volume of their visit to European capitals to attract new foreign investors and find new partners to cooperate in the oil, gas and petrochemical industries.
Meanwhile, it is widely expected that lifting the sanctions will have a significant impact on the global oil market. The current crude oil production of Iran is about 3.3 million barrels per day (bpd) and the International Energy Agency (IEA) expects that Iran's oil output could increase by as much as 730,000 bpd from current levels fairly quickly after sanctions are removed. This figure is expected to reach up to 1 million bpd by next year. The global oil market, however, is currently oversupplied by about 2.5 million bpd and therefore the World Bank estimates that Iran's full return to the global market may lower oil prices by about $10 per barrel in 2016.
For the global natural gas and liquefied natural gas (LNG) markets, lifting the sanctions mean also increasing Iranian production. Iran has the biggest natural gas reserves in the world - 15.8 percent of world's total reserves - with 34 trillion cubic meters.
Iran currently has three LNG projects. However, by August 2015 all of these projects were suspended and sector experts say that the Liquefaction Export Terminal can be operational by 2017 at the earliest. It is very clear that Iran aims to enter the European market with these LNG projects. Iran will need to build a 4,000-kilometer pipeline for transferring its oil. However, building the new line would be costly and take time, at least 5 years. Moreover, building cross-border pipelines also requires regional cooperation and long-term commitment to international agreements.
Since having the biggest natural gas reserves of the world is not enough for Iran to reap benefits in five years, connecting its resources to an existing project emerges as the best option for the country. Iran could join the Southern Gas Corridor (SGC) to export its natural gas to Europe instead of burdening high costs and making a new line. The SGC is a project of the European Commission for the gas supply from Caspian and Middle Eastern regions to Europe. The construction of the Trans-Anatolian Natural Gas Pipeline (TANAP), which will carry natural gas from Azerbaijan to Europe through Georgia and Turkey, started in March and is expected to be completed in 2018. The TANAP is expected to carry 16 billion cubic meters and is set to increase its capacity 31 billion cubic meters by 2026. Iran's joining the SGC will make this project more extensive. It will be able to provide Western countries with long-awaited energy security and reduce Russia's energy monopoly of the European market.
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