Tehran and the P5+1 have only until the end of June to hammer out a long-awaited final nuclear deal. But even if the parties do make a deal, a number of factors are likely to prevent Iran from becoming a serious player on the global gas stage for the next 10-15 years. But then, it most probably would become one.
Inside Iran, opposition to exports is high, with domestic demand for gas triggering occasional supply cuts, while insufficiently attractive terms for international oil companies (IOCs) remain a serious concern to those looking to invest, Interfax news agency reported Sunday.
Speaking as a panelist at an event hosted by King’s College London’s European Centre for Energy and Resource Security (EUCERS), senior Oxford academic Jonathan Stern suggested Iran was unlikely to export significant volumes beyond its immediate neighbors before 2030.
The aversion of many Iranians to gas exports is well founded, said Stern, because economic analysis suggests the largest economic returns generated by gas come not from exports, but from reinjection into oilfields and from petrochemicals.
“Only after those two have been satisfied, you come to exports as an economically attractive source of revenue,” said Stern.
No Sooner Than 2020
Stern’s gloomy near-term outlook for Iranian exports was echoed by fellow academic Frank Umbach, research director at EUCERS. However, Umbach suggested larger Iranian volumes could start to emerge from 2020 – a decade sooner than Stern forecast – but said he thought the process by which sanctions are removed would be more protracted than some have envisaged, thereby muddying the waters further.
“I think from my own perspective, originally coming from a policy field… I would suggest that even in a more optimistic scenario we should not expect all sanctions be lifted immediately,” said Umbach.
Instead, Umbach pointed to more incremental process, where Iran is rewarded each time it takes a step in the right direction. While it is impossible to know exactly how close the parties are to a deal, the panelists sensed progress was being made.
Friedbert Pfluger, director of EUCERS, who has previously spoken out in favor of Iran’s return to the global stage, indicated he was hopeful a deal would be reached before the end of March.
“I think we have a great chance in the next few weeks to reach an agreement. Probably we have to do it before the [2016] US election comes around, so we have a window of opportunity now,” Pfluger said.
UK MP Alistair Burt, former parliamentary undersecretary of state at the Foreign and Commonwealth Office responsible for policy on the Middle East, shared Pfluger’s optimism, but suggested the deal would be far from straightforward.
“My sense is that the powers are edging towards a deal… it won’t be a deal at any price, but then it won’t be a deal at any price for the Iranians either. But all I can sense at the moment is the atmosphere that we’re moving in the right direction,” he said.
Attractive LNG Trade
Rapid development of the LNG market over the next decade will make the LNG shipping option more attractive to Tehran, according to Stern.
“My feeling is that by the 2030s the LNG market will be so far developed compared with what it is now that this is something that Iran will want to participate in,” said Stern.
However, questions over Russia’s reliability as Europe’s main gas supplier have led some to suggest a pipeline to Europe could be a good option for Iran. Although with European demand leveling out it is hard to see companies rushing to invest in a very costly and complicated delivery system.
IOCs eagerly await the unveiling of Iran’s new oil and gas contract terms. Stern cautioned against over-optimism regarding the contracts, and said it was highly unlikely Tehran would ape the production-sharing model used to great success by the Qataris.
“I think we could see something more favorable, but we should not expect a traditional production-sharing agreement – I don’t think the Iranians would embrace that,” said Stern.
