Iran Expanding Influence Through More Gas Deals

Iraq will become the biggest customer of Iranian gas in mid-2017 when it begins a six-year program of importing the fuel to the southern city of Basra.

Under the deal, Iran will double the amount of gas it supplies to Iraq, sending 20 million cubic meters of natural gas per day to Basra during cold weather and 35 million cubic meters per day during warm weather. The contract was signed on Nov. 11 by Reza Araqi, the head of Iran’s National Iranian Gas Co. (NIGC), and Iraqi Deputy Electricity Minister Khalid Hassan Saleh.

The first exports will be limited to a daily amount of about 7 million cubic meters, a volume that could rise to 20 million cubic meters per day. Araqi said the shipments can’t begin until Iran completes the pipelines and pressure-boosting facilities required for the gas shipments, a process that is expected take about 18 months.

Related: Global Supplies Outweigh Paris Attacks For Oil Prices

Araqi also said Iran will construct a conduit to divert gas from its 6th gas trunkline, known as IGAT 6, which now transports gas from the Iran’s huge South Pars offshore gas field in the Persian Gulf to the Iranian province of Khuzestan, which borders southern Iraq.

The price of the gas was not disclosed, but Araqi said it would be consistent with the current market price. Araghi added, “The pricing will be similar to that of the Baghdad contract.”

Araghi was referring to a deal signed in 2013 in which Iran agreed to supply 25 million cubic meters of gas per day to the Iraqi capital, Baghdad, in a deal worth $3.7 billion per year.

The agreement calls for Iran to ship 25 million cubic meters of gas to power plants in and around Baghdad using a 165-mile pipeline. Once it begins, that project is expected to earn Iran $3.7 billion per year. It has been delayed by concerns for the pipeline’s security as Iraq fights an insurgency waged by the Islamic State.

Related: Saudis Planning For A War Of Attrition In Europe With Russia’s Oil Industry

Azizollah Ramezani, the director of international affairs for the NIGC, said that so far, the Basra gas deal is limited to only six years, for a maximum total of 40 billion cubic meters of gas, because Iraq has begun several energy development projects, including efforts to increase its own output.

“If Iraq’s development projects fail to boost its gas output,” Ramezani said, “the deal may be extended, and there is room for more cooperation in this regard.”

The deal with Iraq is one of several involving gas that Iran has struck with nearby countries. It is already working on several projects, including the export of gas to Turkey and Pakistan; a gas-for-power deal with Armenia; and a gas swap with Azerbaijan.

Related: Korea Leading The Way With Ambitious Fuel Cell Project

After Russia, Iran has the second-largest reserves of gas in the world. It now produces about 600 million cubic meters of gas per day, virtually all of it consumed domestically because Western sanctions over its nuclear program, expected to be lifted next year, have limited its export capacity.

Relations between Tehran and Baghdad were strained, to say the least, until the United States invaded Iraq in 2003 and ousted its president, Saddam Hussein, who had suppressed the country’s Shi’a majority. The two neighbors even fought a particularly destructive war in the 1980s.

Since Saddam’s ouster, however, Iraq has been run by a Shi’a-majority government, and the two countries have become close political and economic allies.

By Andy Tully of Oilprice.com

More Top Reads From Oilprice.com:

• OPEC’s Strategy Is Working According To Cartel’s Latest Report
• Still Plenty Of Interest In Offshore Oil And Gas Exploration
• Oil Tankers Are Filling Up As Global Storage Space Runs Low