 |
|
The
Gordian Knot of Gas Industry in Iran |
We do not yet know what are
we going to do with gas; allocate it to domestic consumption, export it, or
use it to develop energy intensive industries?
As if, gas industry is facing
a Gordian knot and there is nobody to cut it. State officials are still
discussing whether to use it as clean fuel inside the country or inject it
into oil fields to increase their recovery factor without achieving a decisive
answer. Our country has not yet come up with a final strategy for its abundant
gas reserves. This is the gist of question that we asked Dr. Nersi Qorban as a
strategist to tell us what we have got to do with gas reserves.
Dr. Nersi Qorban is currently
managing director of Nar Kangan Gas Company. He has been active in the field
of oil and gas for more than 30 years and due to managerial posts that he has
held at Qeshm Azar Energy Company, Qeshm International Energy Company, and
Institute for International Caspian Studies as well as membership at Energy
Institute, Institute for International Strategic Studies and Royal Institute
of International Relations, his opinion is highly valued both in Iran and at
international level. What follows is the text of our interview with Dr. Nersi
Qorban.
What is your
opinion about gas exports?
Despite the fact that Iran
enjoys the world’s second biggest gas reserves, its share of global gas
production is very low. Gas reserves of all eight countries that account for
the highest gas production in the world, save for Russia, are lower than Iran,
but Iran’s production is less than 10 percent of total production of those
eight countries.
However, we can increase our
production to 500 billion cu. m. per year just to catch up with the United
States and Russia.
How much gas
is produced by the United States and Russia?
Russia produced 598 billion
cu. m. gas in 2005 while gas production in the United States during the same
year amounted to 526 billion cu. m. and Iran produced only 87 billion cu. m.
gas during the same year. If we increased our production, we could both export
gas and use it for injection into oil wells and domestic consumption. When
Canada, with only one-seventeenth of Iran’s gas reserves is producing two
times gas compared to Iran, it shows to what extent our country is lagging
behind in this regard.
And what
about your opinion on gas exports?
If we fail to increase gas
production, we will not be able to export gas and, at the same time, use it
for injection into oil wells and meeting domestic demand. Therefore, we must
determine our priorities. In this state, our first priority, in my opinion,
should be injection into oil wells and meeting domestic demand.
Some
analysts, however, believe that by focusing on gas injection into oil wells
and in view of increasing domestic production, we will lose global gas markets
and this will harm our country in the future.
I see this issue from another
angle. Iran should come up with a meticulous plan for its gas and we must know
what we are going to do with gas reserves. How our economy will be faring over
the next 20 years? What facilities we have and what we lack? Iran enjoys oil,
gas as well as inexpensive, educated manpower. The bottom line is that we must
make more investment and increase production as much as possible. In that
case, we will be able to simultaneously export gas, inject it into oil wells
and cover domestic consumption. When talking about gas exports, we must not
forget that gas exports cannot be realized rapidly and at least a 10-year plan
is needed. On the other hand, political problems surrounding our country pose
a major obstacle.
I gather that
you mean political problems and lack of clear export plan, are the most
impediments on the way of entering gas markets? Am I right?
To some extent, yes. But the
most important issue is that Iran has currently lost a big chunk of the market
pie because Qatar, as our main rival in the world’s LNG (liquefied natural
gas) market will be the world’s biggest gas exporter by 2012. At the same
time, we are planning just to enter global gas markets in 2012. Therefore, we
are already lagging behind. On the other hand, when a country like Qatar has
made such a long-term plan, it will supply gas at a much lower price that can
be afforded by Iran.
Of course, we must not forget
that gas will be playing a bigger part in future and gas demand will increase.
Therefore, new outlets can be expected to be opened for natural gas. So, if
Iran enters the market belatedly, it may still be able to find new markets.
But the main issue which is beyond doubt is that we will continue to lag
behind Qatar with regard to LNG because, at present, our LNG export is close
to zero while Qatar accounts for 14 percent of LNG market of the world.
What other
reason is there which enables Qatar to be currently offering gas at a lower
price than Iran?
The reason is that Qatar
cannot do anything else with its gas. The country has totally focused on gas
exports. The problem regarding South Pars gas field is that gas production
from that field follows the rules of liquid gas economy and not gas per se.
The reason is that for every billion cubic feet gas which is produced from the
field, 40,000 barrels gas condensate is also produced. That amount of
condensate is currently worth 2.8 million dollars, but the associated gas is
only worth one million dollars. Therefore, the value of gas condensate
produced at South Pars gas field is higher than the gas output and, for this
reason; Qatar is willing to boost its production in the field to extract more
condensate. As a result, it is selling gas at a lower price than other
exporters and, therefore, every investor or customer that becomes interested
in Persian Gulf gas goes toward Qatar due to lower price that it offers.
You are one
of those who criticize the existing managerial structure of domestic oil and
gas industry. Please explain in this regard.
I believe that increasing
production will never be possible under the current system and structure of
the Ministry of Petroleum. Assigning National Iranian Gas Company only to gas
distribution with National Iranian Oil Company taking charge of its production
is not an efficient system. Therefore, it should be replaced with another
system where the National Iranian Gas Company will be in charge of gas affairs
from production up to gas marketing and the National Iranian Oil Company
should only focus on oil production.
What is your
proposal?
In my opinion, oil and gas
should be totally separate issues and only exploration should be done through
a joint organization. Since it is not clear what is being discovered through
an exploration operation (oil or gas) and such operation is also very costly,
it should be carried out jointly. But when it becomes clear that there is a
gas or oil field, it should be referred to the relevant company. This system
will be effective. In Russia, everything related to gas is being done by
Gazprom while Lukoil is in charge of oil affairs. The issue of gas has not
been attached due significance in our country because they always thought that
crude oil will be more profitable. Therefore, they also sought oil and
sometimes, just accidentally, discovered gas.
Do state
officials attach the same importance to domestic companies that are active in
gas industry?
The problem with which we are
facing inside the country is that every domestic company, which wants to buy
gas, is faced with this reasoning at the National Iranian Oil Company that gas
should be sold to domestic companies at the same price that has been
considered for exported gas. That is, the same price which is considered for
exported gas to Turkey should be imposed on domestic investors who are
working, for example, near Isfahan or Shiraz. This kind of thought has
practically barred development of gas intensive industries in the country
because it is impossible for an Iranian investor to develop gas industries
while purchasing natural gas at export price.
How much
investment, do you think, is needed to develop gas fields and industries in
the country? Are domestic sources sufficient to meet that investment?
I think that we will need
more than 50 billion dollars to increase our gas production by three times
compared to the current figure. Undoubtedly, that investment cannot be totally
made by domestic companies alone.
In view of
conditions surrounding Iran’s nuclear case, don’t you think that it is a
reason that has discouraged foreign investors from bringing their money to
Iran?
Some foreign companies like
British Petroleum (BP) and Royal-Dutch Shell have made heavy investments in
the United States and renewing cooperation with Iran will endanger their
interests. On the other hand, the National Iranian Oil Company should avail of
expert forces and the government should use finance scheme and offer good
profits to attract investors. An investor should have a good reason for
his/her investment; either the return should be suitable or the job should be
easy. There are many inefficient and troublesome laws in Iran. At the same
time, inexpensive manpower and low price of raw materials are comparable
advantages that can be used to attract investments to the country.
What is your
analysis of international gas prices about which our officials talk a lot?
The international price that
officials are talking about is really nonexistent. Gas price is regional. For
example, in our region, Iran sells every cubic meter of its gas to turkey at
20 cents and buys Turkmenistan’s gas at 6 cents per cubic meter. However,
according to Crescent contract, Iran has accepted to sell gas to that company
at 1.7 cents per cubic meter. Which of those prices can be considered an
international price? Can we call them international prices? These words are
use erroneously in our economic literature and should be totally omitted. I
reiterate that gas price is determined regionally on the basis of regional
supply and demand balance. Let’s not forget that such prices that are quoted
as international prices can, by no means, attract foreign investors.
How regional
prices are calculated?
Regional prices are
determined on the basis of regional supply and demand and relations between
exporting and importing countries. Of course, value of crude oil and other
energy carriers is effective in this regard.
Iran was not
totally successful with regard to gas exports to Turkey. What is your opinion?
Gas sale contracts are
usually long-term and are concluded according to a special mechanism which
leaves the room open for bargaining. The price asked by Turkey is very far
from the reality.
What about
price of Russia’s exported gas to Turkey? Is it economically justifiable?
Russia had proposed a lower
price than Iran to get a bigger share of the market. At the same time, the
pipeline which will carry gas from Russia to Turkey passes under the Black Sea
and its construction will be very costly, which is not proportionate to gas
price proposed by Russia. Such bargaining will only benefit the customer
(Turkey). In the past, Russia was the sole country which exported gas to
Europe and accounted for 25 percent of the gas needed by European countries.
The amount of Iran’s exported gas is, by no means, comparable to Russia.
Let’s talk
briefly about the Peace Pipeline. What is your forecast about the destiny of
the pipeline?
Since Iran has proposed gas
price on the basis of 10 percent of Brent benchmark and since gas pricing
system in India is controlled by the private sector, I predict that they will,
by no means, accept Iran’s proposed price. On the other hand, if Iran accepted
their proposed price, in view of the cost of building the pipeline which
amounts to 7 billion dollars, the country will not gain much. We must wait and
see whether the project entails any other benefit for Iran apart from price of
exported gas.
Does it
entail other benefits or not?
It certainly does. Building a
1,100 km pipeline through southern parts of Iran will bring prosperity to
those regions. This is especially true because part of the pipeline’s route is
used for goods smuggling and construction of the pipeline will, so some
extent, control smuggling. Also, this measure will make India and Pakistan
dependent on Iran’s gas and, most importantly, it will promote peace in that
region. For this reason, if exports are a goal, priority should be given to
gas transfer through pipeline over LNG exports. Therefore, is we help forge
peace between the two countries we can greatly increase our economic
interaction with those two countries.
Some experts
believe that Qatar’s proposed gas price to Pakistan is just aimed to attract
customers because Qatar has sold its gas in advance until 2012.
This is not the case. If we
do not accept to sell our gas at a lower price, they will buy Qatar’s gas. If
Qatar receives a good offer, the country will no doubt increase its investment
in the sector and add to its gas production installations in South Pars gas
field.
What role
will be played by India?
Since coal is a basic fuel in
India, the country does not want to pay a higher price for gas than cost price
of coal.
What is the
role of income tax in determining gas price?
In our country, profit tax
for companies is 25 percent. As a result, gas intensive industries should pay
tax in addition to paying price of gas as the main feedstock. Therefore,
government’s earning through gas intensive industries should be based on price
of feedstock and tax, on the one side, and their role in creating jobs and
paving the way for technology transfer, on the other side. Investors in Qatar,
only pay the gas price.
Anyway, if Iran intends to
compete with Qatar with regard to soliciting capital to gas industry, it
should get price of gas which is sold to industries close to that of Qatar. |
