Nineteen new cooperation agreements in the areas of oil gas, infrastructure, and finance have been signed in recent days between Iran and Russia, a senior source who works closely with Iran's Petroleum Ministry told OilPrice.com last week. These build upon the key enhanced cooperation themes laid out in the new 20-year comprehensive cooperation deal between the two countries to which Iran's Supreme Leader, Ali Khamenei, gave his official approval on 18 January. That deal, and the new agreements on top of it, in many ways continue to run in parallel with key elements of the all-encompassing 'Iran-China 25-Year Comprehensive Cooperation Agreement', as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order.
One area, particularly in focus, is increasing their cooperation and control in the global gas sector. Given that the two countries occupy the number one and number two positions in the world's largest gas reserves table, respectively - Russia with around 37 trillion cubic metres (tcm) and Iran with about 32 tcm - they are in an ideal position to do this. In July 2022, Russia laid the foundations for this enhanced gas cooperation with Iran with a US$40 billion memorandum of understanding (MoU) signed between its flagship gas giant, Gazprom, and the National Iranian Oil Company (NIOC). This was seen by the Kremlin as a significant step towards enabling Russia and Iran to implement their long-held plan to be the core participants in a global cartel for gas suppliers in the same style as the Organization of the Petroleum Exporting Countries (OPEC) for oil suppliers. With its foundation in the current Gulf Exporting Countries Forum (GECF), this 'Gas OPEC' would allow for the coordination of an extraordinary proportion of the world's gas reserves and control over gas prices in the coming years. Together, Russia, Iran, and Qatar account for just under 60 percent of the world's gas reserves, and they were the three countries instrumental in the founding of the GECF, whose 11 members control over 71 percent of global gas reserves, 44 percent of its marketed production, 53 percent of its gas pipelines, and 57 percent of its LNG exports. Its long-term mission statement, agreed in Moscow, is to: "Enhance the role of GECF in the global energy scene in order to support the sovereign rights of Member Countries over their natural gas resources, to maximize their value for the benefit of their people, and to promote their coordination on global energy developments with a view to contributing to global sustainable development and energy security".
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The 2022 Gazprom MoUs highlighted that the new Russia-Iran gas alliance is aimed at controlling as much of the two key elements in the global supply matrix as possible - gas supplied over land via pipelines and gas supplied via ships in liquefied natural gas (LNG) form. According to a statement at that time from Hamid Hosseini, chairman of Iran's Oil, Gas and Petrochemical Products Exporters' Union, in Tehran: "Now the Russians have come to the conclusion that the consumption of gas in the world will increase and the tendency towards consumption of LNG has increased and they alone are not able to meet the world's demand, so there is no room left for gas competition [between Russia and Iran]." He added: "The winner of the Russia-Ukraine war is the United States, and it will capture the European market, so if Iran and Russia can reduce the influence of the United States in the oil, gas and product markets by working together, it will benefit both countries."
The Gazprom plan that is moving ahead now includes giving its full assistance to the NIOC in the US$10 billion development of the Kish and North Pars gas fields with a view to the two fields producing more than 10 million cubic metres of gas per day. Another element is that Gazprom will also fully assist with a US$15 billion project to increase pressure in the supergiant South Pars gas field on the maritime border between Iran and Qatar. A third part is that Gazprom will provide full assistance in the completion of various LNG projects and the construction of gas export pipelines. And the final element is that Russia will examine all opportunities to encourage other major gas powers in the Middle East to join in the gradual roll-out of the 'Gas OPEC' cartel, the Iran source exclusively told OilPrice.com last week. "Russia wants to build up other countries' reliance on its gas supplies again, and it is also looking to help Iran build out its LNG capabilities, so that these can be utilised from the Middle East to add to Russia's own supplies of LNG that are focused on the Arctic region," he said. "Russia sees gas as the optimal product in the transition from fossil fuels to renewable energy, so controlling as much of the global flow of that will be the key to energy-based power over the next ten to twenty years, and LNG has become the world's emergency gas supply, following its invasion of Ukraine," he added.
At the end of January, Iran's Petroleum Ministry announced that it will commence 1.5 million metric tonnes per year (mtpy) of LNG production at a medium-sized plant at Asaluyeh in 2026. As exclusively related to OilPrice.com by the Iran source, these are part of much bigger plans to further monetising its huge gas resources - and secure greater geopolitical power - by becoming a top global exporter of LNG, as analysed in depth in my new book on the new global oil market order. Although the Asaluyeh LNG project will start with just a 1.5 million mtpy plant, it is to be built on the site of the original much-larger 'Iran LNG Project' around Tombak Port, around 30 miles north of Asaluyeh itself, focusing on gas from the North Pars gas field. Located 120 kilometres southeast of the southern Bushehr Province, the North Pars field has around 59 trillion cubic feet of gas in place, with a conservatively estimated recoverable volume of gas of approximately 47 trillion cubic feet. It was established early on that at least 100 million cubic metres per day (mcm/d) of output could be achieved within less than 12 months of proper development - with all the gas recovered to be channelled into LNG production of at least 20 million mtpy.
An early entrant to the original Iran LNG Project was the China National Offshore Oil Corporation (CNOOC), which signed a memorandum of understanding (MoU) in September 2006 with the NIOC before slow progress prompted the NIOC to suspend the deal. At that point, German chemicals giant Linde Group took over the main development of the Iran LNG Project. Within a relatively short time, it had 60 percent-completed the US$3.3 billion flagship LNG export facility that was set to produce at least 10.5 million mtpy of the liquid gas, with expectations that it would take less than a year to finish. Again, though, due to the reimposition of sanctions, progress on the project stalled again. It was at that point in 2018 that Gazprom first became seriously involved in Iran's nascent LNG sector, looking to implement a two-fold joint strategy regarding Iran's gas, as also analysed in depth in my new book on the new global oil market order. The first part was a gas cooperation roadmap between the two companies, and the second part detailed the construction of Iranian LNG facilities in partnership with Iran's Oil Industry Pension Fund.
Initially, this would allow Gazprom to, in effect, take over from Linde on the existing 60 percent-complete LNG complex and later to be integral in the construction of the mini-LNG complexes. Iran and Russia reasoned that mini-LNG complexes - with production capacities ranging from 2,000 to 500,000 tons of LNG per year, compared to a typical large scale plant capacity of between 2.5 and 7.5 million tons per year - would be less vulnerable to U.S. or Israeli attacks. Gazprom would take payment for its work from the sale of gas both from this complex and from part of the output from fields feeding gas into it. At that time it was envisaged that the North Pars LNG development would need around US$16 billion in investment - comprising US$5 billion in the upstream sector and US$11 billion in the downstream sector (mainly LNG plants) - to achieve the first phase LNG output of at minimum 100 mcm/d and the drilling of the 46 wells that this would entail. This is still the ballpark figure that Iran is working with.
By Simon Watkins for Oilprice.com
Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for… More