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Europe Needs Iranian Gas

Posted on Apr. 10, 2008

Europe’s hunger for natural gas and its lack of reliable suppliers is leading several countries to court Iran. This is a delicate situation for the European Union, which also wants to keep the pressure on Tehran to give up its nuclear power program.

A look at projections for future gas supplies demonstrates the predicament. By 2030, Europe will depend on foreign producers for 85 percent of its gas, a big jump from the current 57 percent. Further, many European countries are uncomfortable with their reliance on Russian gas giant Gazprom, and are eager to find suppliers that don’t dance to the Kremlin’s tune.

Although Europe is unlikely to soften its stance on Iran’s nuclear ambitions, some analysts believe energy needs and security of supply concerns will eventually outweigh geopolitical differences with Tehran. “What we assume is that the current issue will somehow be resolved and ultimately Iranian gas will find a place,” said Ian Ashcroft, principal gas analyst for Edinburgh-based Wood Mackenzie. “We’re not saying how or when, but ultimately, given their large potential gas resource and its location, it’s certainly likely [Iranian] gas will find its way into Europe.”

World proved gas reserves, 2006

Iran now has an annual export capacity of 247 billion cubic feet, which according to Wood Mackenzie is expected to increase more than 10-fold to over 2.8 trillion cubic feet by 2020. Those exports will likely be split evenly between Europe and Asia, with India and Pakistan the key Asian customers, said Ashcroft.

Iran’s main western markets will be Turkey, Italy, and Greece, reaching all the way up to Austria. Europe will continue to meet most of its new requirement through Russia and Norway, although the Middle East, North Africa, and the Central Asian republics will take a bigger share.

It remains uncertain how the nuclear standoff will play out, and how that will affect the timeframe for the increase of Iranian imports into Europe. Ferran Tarradellas, a spokesman for the E.U. Energy Commission, told Energy Tribune, “Iranian gas is not wanted or welcome in Europe until the uranium enrichment issue is resolved.”

But this position could allow Iran to renounce uranium enrichment without having to surrender nuclear generation altogether, as part of an incentive package that Europe could negotiate with Iran. That said, some analysts doubt Iranian gas will be used in Europe any time soon.

“We will see [a] rebalancing of this approach, but not in the near future,” said Mathias Roth, a European external energy policy analyst with the Centre for European Policy Studies in Brussels. And still others, like Nikos Tsafos, a Washington-based PCF Energy specialist in European natural gas, say the future of Iranian gas in Europe is uncertain. “I’m not convinced Iran will have the gas to send to Europe. Europe’s need for gas is the only good thing going for Iran, but the details are not working for them,” Tsafos said, referring to rising domestic demand, political risks, and the unattractive terms Iran offers in its energy sector. Still, analysts say Europe needs to secure more gas; Norwegian and north African supplies cannot increase much into the future, while Russian ones are nearing an E.U. cap. Gas-rich Caspian countries will supply a portion, but their contracts with Moscow make their supplies more uncertain.

Unreliable supplies have already delayed the Nabucco pipeline, Europe’s ambitious effort to diversify away from Russian gas. Completion of the 2,000-mile pipe from Turkey to Austria, with an annual capacity of 1.1 trillion cubic feet, has already been pushed back twice.

So far the E.U. has said it will not use Iranian gas in Nabucco, but despite U.S. sanctions, Turkey wants to develop Iran’s fields to sell its gas to European countries. Russia’s Gazprom could also eventually buy Iranian gas and resell it to Europe. In addition, Wolfgang Ruttenstorfer, the chief executive of Austrian OMV, which leads the Nabucco consortium, told Reuters in February that the E.U. should reconsider its opposition to importing Iranian gas, in order on complete Nabucco and to decrease dependence on Gazprom.

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