Swiss Hoping to Build on Iran Energy Ties

Swiss Hoping to Build on Iran Energy TiesSwiss Hoping to Build on Iran Energy Ties

A high-level Swiss delegation, headed by the country's President Johann Schneider-Ammann, arrived in Tehran on Friday in a visit that can lead to major improvements in the two nations' limited energy ties.

The visit by the Swiss leader to the Iranian heartland, his first after international sanctions against Iran were revoked last month, is the next step, rather than a starting point, in Tehran-Bern energy trade.

Iran, once the second-biggest exporter of the Organization of Petroleum Exporting Countries and now its fifth-biggest, is keen to recoup market share it lost to rival producers such as Saudi Arabia and Iraq.

Iran's Oil Ministry has said it has reached the short-term goal of boosting crude output capacity by 500,000 barrels per day and plans to raise production by the same amount through 2016.

The country has signed deals to export 300,000 bpd to European refiners, including Russia's Lukoil, Spanish refiner Cepsa and France's Total, and oil-dependent Switzerland can be the next importer of Iran's crude oil.

Oil has been a dominant energy source in Switzerland, accounting for around 40% of the country’s total primary energy supply in 2010, with nuclear energy providing about a quarter of energy demand, data by the International Energy Association show.

Switzerland’s total oil demand has seesawed between 200,000 bpd and 300,000 bpd over the past few years–a minuscule amount compared to Total's 160,000 bpd contract with Iran or the multimillion-barrel shipments to Russia's Lukoil and Spain's Cepsa.

However, Iran can start selling its crude oil in small supplies to the landlocked Switzerland through its southern neighbors Italy and France, the two countries who are rapidly improving relations with Iran.

Switzerland has no domestic oil production and is entirely dependent on oil and petroleum products imports. It has two refineries with a total crude processing capacity of around 125,000 bpd.

But the Islamic Republic faces an uphill task to break into Switzerland's oil market. According IEA, more than 60% of Swiss oil imports in 2011 came from countries of the former Soviet Union.

The Swiss government plans to gradually reduce oil demand by 10% in 2020 and by 39% in 2050 compared to 2009.

  Europe's Trading Haven

Major international trading companies with headquarters in Switzerland are proving vital in expanding Tehran-Bern economic and energy relations after the lifting of sanctions.

Vitol Group, the world's largest independent oil trader headquartered in Geneva, was the first company to confirm this month it had effectively resumed buying oil from Iran after the end of economic sanctions.

The news was an incentive for international companies seeking to start or rekindle business with Iran but are still biding their time in fear of violating the US-led financial and trade restrictions against the Persian Gulf country.

Iran-Switzerland energy trade is a two-way street. In a race to capture the Iranian oil products market, Switzerland-based trader Gunvor is loading the Maersk Messina vessel with gasoline headed to the southern port city of Bandar Abbas by the end of February, trade and shipping sources said on Thursday.

Global oil majors are trying to sell diesel and gasoline to Iran while making moves to lift condensate cargoes from the Middle East country.

Earlier this month, Glencore, another major Swiss trading company, scheduled a clean tanker to load gasoline from India with an option for Iran delivery in March.

  Dead Deal

A highly-publicized gas pipeline deal between Swiss energy firm Axpo Holding and the National Iranian Gas Export Company has come to an unsuccessful end, Axpo told the Swiss News Agency on Monday.

Under the deal, signed in 2008 during the tenure of former Iranian president Mahmoud Ahmadinejad, Iran would have delivered 5.5 billion cubic meters of natural gas per year to Europe through a pipeline crossing from Greece via Albania to Italy.

At the time, the Swiss Energy Ministry said the 25-year contract would help the country diversify the gas supply to Europe and indirectly to Switzerland.

However, Axpo said high costs, complications in transport and political reasons contributed to the deal’s quiet burial.