As has already been discussed at length, once the economic sanctions imposed by the U.S. and the European Union on Iran begin to be lifted next year, there is going to be a surge in the already oversupplied global crude oil markets. The current world crude oil output is around 96.6 million barrels per day and with Iran’s addition, this output could further increase by around 500,000 barrels per day.
Although the surge in crude oil markets could further worsen the global supply/demand gap, Iran could present a new source of competition on other crucial fronts too, especially in the gas markets.
Another Source of Gas from the Persian Gulf?
Let us look at Qatar first. Although Qatar is one of the smallest contributing members of OPEC, the small nation is the world’s biggest exporter of Liquefied Natural Gas (LNG). With close to 890 trillion cubic feet of proved natural gas reserves, Qatar is the third largest natural gas producer in the world. Almost all of Qatar’s natural gas is located in its North Field which, along with Iran’s South Pars, holds more than 885 trillion cubic feet (TCF) of natural gas and is the largest natural gas formation in the world.
Although Qatar has been able to successfully develop its field in collaboration with Total, Exxon Mobil and Shell, Iran has so far been left behind mainly due to reduced foreign investment sanctions and lack of technology transfer stemming from international sanctions. In spite of this, Iran’s natural gas output increased in 2014 when the latest expansion of the South-Pars (which has a 24–phase development plan) field came online. The project is handled by Pars Oil and Gas Company, which is now looking for new foreign investors to invest in the project.
In fact, the Managing Director of Pars Oil and Gas Company, Ali Akbar Shabanpour, is scheduled to visit London this year to woo potential investors in the South Pars Field. Companies like Royal Dutch Shell and Total, who are already looking to invest in Iran, would be among the top targets.
India has also expressed its interest in investing close to $15 billion in new projects in Iran. Even South Africa is planning to invest in future LNG projects in Iran. With rising interest from Europe, Asia and Africa, Iran is now gearing up to increase its gas production from South Pars field and it is expected that the Islamic Republic could start exporting gas to Europe and other regions by as early as 2020. With this, the moratorium on newer projects that is currently in place in Qatar’s North Field might soon come to an end and we might witness a race to compete for LNG exports between the two Middle Eastern nations.
Have any major renewable companies expressed interest in Iran?
With the removal of sanctions, Iran is also looking to boost its renewable energy sector. According to Iranian Energy Minister Hamid Chitchian, Iran wants to increase its renewable energy capability to 5,000 MW (from current capacity of 150 MW) by 2018. Bester, a Spanish Renewable energy company, has recently signed an agreement with Sunir – a state run Iranian company. Bester would consult with Sunir in developing renewable technology, with a particular focus on solar energy. Related: Can The Oil Industry Really Handle This Much Debt?
“Iran generates most of its electricity by its fossil fuel power plant, but the Energy Ministry’s policy is willing to use renewable energy. We hope to cooperate with Germany, considering its experiences in setting up power plants in Iran,” said Iran Power Generation and Transmission Company’s Managing Director Homayoon Haeri.
German renewable companies have already started investing in Iran’s renewable sector, specifically the wind sector. A German–Iranian renewable energy company called Development Environment Arvand Co. is set to construct a 48 MW wind farm for $46 million in south west Iran. A 20 MW solar plant is being planned in the same free trade zone by an Iranian company called The Abadan. With these developments on track, Iran could well compete in the near future with the likes of UAE, Saudi Arabia and Qatar which are the foremost markets for renewable energy in the Middle East.
With all this, it is pretty clear that Iran’s complete return to the world economy would have major economic repercussions, which would extend well beyond the global oil industry.
By Gaurav Agnihotri for Oilprice.com
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