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Iran Can Provide Europe with Gas for 90 Years

12 Oct, 2015

The Financial Times wrote an article on Iran’s energy sector saying that the country has 34 trillion cubic meters of natural gas reserves, which are enough to feed European nations for at least 90 years.

Iran is holding the biggest gas reserves in the world, but it has not yet developed its energy potential. Gas production is hardly responding to local consumptions. Sanctions, which have targeted Iran’s energy sector since 2007 affecting the business of multinational companies dealing with Iran, and the country’s legal boundaries in the energy sector (called buyback contracts which are not attractive any more for foreign investors) are blamed for the backwardness of the sector.

However, the Joint Comprehensive Plan of Action or the nuclear deal reached between Iran and the six world powers in July is expected to reshape the Iranian economy, including its energy industry.

As the government was negotiating with world powers over a nuclear dispute it also had an eye on its energy contracts which need to be revised. The Iranian government has begun since 2013 revising the contracts, using Iraq’s contracts as a model to get multinational corporations involved in its oil and gas projects.

Delayed for several months, Iran’s new generation of energy contracts was to be eventually unveiled by October or November this year in Tehran. Given the recent positive political and economic developments, many European groups, including the European Commission, have proposed that Iran can potentially turn to be a main gas supplier for the Europe. Such proposals are fully in line with the new strategy Europeans have developed in diversifying their gas suppliers. However, Iran is unlikely to become a gas supplier to the Europe, given the short term and long term plans the country has in hands to develop its gas industry.  

Gas resources are among natural gifts Iran has not yet wasted. Given the defective oil wells on the one hand and the environmental pollution oil crude usage has caused on the other hand, the Iranian authorities will not be able to rely on oil resources as a tool to improve the economic situation.

Climate change discussions as well as an increase in energy efficiency and the usage of renewable resources to produce electricity in developed nations seem to be signs of a looming system that would levy tax on carbon usage in the near future.

Developing countries like China and India which may not be able to adopt themselves with technological changes could replace oil with gas as a mid-term solution, since natural gas can reduce carbon production in the industrial systems to a large extent.

Applying such a strategy, China and India could buy time to curb repercussions to be threatening their industrial exports. So, if Iran keeps the option of exporting gas to Europe on the table it would have the upper hand in negotiating with potential Asian buyers of its natural gas. Of course, like China and India, Iran also needs to reduce carbon production in its industrial activity if it is to avoid possible taxes on carbon production.

As a result, Iran is not predicted to become a giant gas producer in the near future, given the limitations the country is facing to reform its energy contracts and attract foreign investment. This latter seems to be implemented in a very slow way and therefore Iran will only be able to meet its domestic needs and maximum one of its Asian customer’s, and not more.

Given the fact that Iran has close ties with the Shanghai Pact and already begun negotiations with Asian nations, Iran’s gas is unlikely to reach European nations in a predictable future, especially that Turkey, a regional rival for Iran, is the only territory through which Tehran can export to Europe. Turkey has fundamental differences with Iran on regional issues.


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